Mortality & Expense (M&E) Risk Charge
Pays the insurer for guaranteeing a death benefit and for taking on mortality and expense risk.
Typically 0.50%–1.75%/yr
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What's Your Variable Annuity Really Costing You?
Variable annuities stack several fees on top of one another, which makes the true cost hard to see on a statement. Enter your numbers below to see your real annual cost, how it compounds, and the market risk you're still carrying.
Fees, Explained
Here Are All the Possible Charges Layered Into Your Variable Annuity
Your statement rarely lists them together. Here's what each one is actually for.
Administrative Fee
Covers recordkeeping, statements, and customer service on the contract.
Often 0.10%–0.30%, or a flat $30–$50/yr
Subaccount / Fund Expenses
Similar to a mutual fund's expense ratio — charged by the investment options inside your Variable annuity.
Typically 0.50%–1.50%+/yr
Income Rider Fee
For a guaranteed lifetime withdrawal or income benefit — income you're promised even if the market falls or the account hits zero.
Typically 0.50%–1.50%/yr
Death Benefit Rider Fee
For an enhanced or stepped-up death benefit above the account value, so beneficiaries get a guaranteed minimum.
Typically 0.25%–0.75%/yr
Other Optional Riders
Long-term care enhancements, return-of-premium guarantees, and similar add-ons — each with its own charge, stacking on top of the others.
Typically 0.20%–1.00% each/yr
Surrender Charge
A declining penalty for withdrawing more than your free amount during the early years of the contract.
Often 7%–9%, phasing out over 5–9 years
Premium Tax
Some states tax annuity premiums, and insurers typically pass that cost on to the contract owner.
Varies by state, often 0%–3.5%
Transfer / Reallocation Fee
A small charge if you move money between subaccounts more often than your free allowance.
Often $10–$25 per excess transfer
One more thing worth flagging: the "income account" balance shown on many statements isn't real money — it's better described as funny money, a number that exists only to calculate your guaranteed withdrawal percentage. You can't call the insurance company and ask for it as a lump sum. And that withdrawal percentage is set by the insurer, not negotiated with you — it can vary by product, by rider version, and by the age you turn on income. The cash you can actually access is your account value, which is often meaningfully smaller.
This covers the most common charges — some contracts include others. Your prospectus will have the complete list and the exact figures for your product.
Run Your Numbers
Add Up Your Contract's Real Cost
Most people assume they're paying around 1% a year. Once every layer above is added together, all-in costs on a contract with income or death-benefit riders often land between 3% and 5% — spread across your statement and prospectus rather than shown as one total.
Move the sliders to match your contract. Don't know your exact numbers? The defaults reflect commonly cited industry ranges — your latest statement or prospectus will have your actual figures.
Your Contract
$
This is your real cash value — not any separate "income account" or "benefit base" number shown on your statement. Type an exact figure above, or use the slider.
1.25%
Pays for the insurer's death-benefit guarantee and risk-bearing. Typically 0.50%–1.75%.
0.15%
Covers recordkeeping and statements. Often 0.10%–0.30%, or a flat $30–$50/yr on some contracts.
1.00%
Charged by the investment options inside your annuity. Typically 0.50%–1.50%+.
1.00%
For guaranteed income, an enhanced death benefit, or similar. Enter 0 if you have none.
6.0%
0.50%
A rough cost of investing the same way without an insurance wrapper — e.g. a low-cost index fund lineup.
5.0%
The penalty for withdrawing more than your free amount today. Often starts at 7%–9% and phases out over 5–9 years.
Your Results
Total Annual Cost
3.40%
≈ $3,400 this year on your current balance
Around typical for variable annuitiesCost of These Fees Over Time
This year$3,400
Over 10 years$40,185
Over 20 years$91,105
Over 30 years$155,629
Over the next 20 years
Extra cost vs. a lower-fee alternative$129,553
This includes both the fees themselves and the growth they didn't get to earn along the way.
Illustrative only, based on the assumptions above, and not adjusted for inflation. Markets don't actually grow in a straight line — more on that below.
If you cashed out today
Current surrender charge (5.0%)-$5,000
Worth knowing: some fixed indexed annuities offer a bonus credited on day one — one that can well exceed your variable annuity's surrender charge — protect your principal from market downturns, and often come with no annual fees and no advisory fees. Income riders on these products, when selected, commonly run around 1% a year, with no other ongoing charges.
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Risk
The Market Risk You're Still Carrying
Unlike a fixed indexed annuity, the money in a variable annuity's subaccounts is invested in the market. Your account value moves up and down with those investments — and unless you've purchased a specific guarantee rider, there's no floor under it. A downturn can reduce your balance the same way it would in a brokerage account, except you're also still paying the fees above.
A fixed indexed annuity works differently: it credits a portion of a market index's gain up to a cap, but it can never credit a loss — a bad year in the market means a flat year for you, not a negative one. The chart applies the exact same hypothetical sequence of market returns to both products, using your total fee from above for the variable annuity side.
Same index moves. Same years. Very different downside.
Hypothetical illustration only — not actual investment results or a projection of any specific product. Assumes an 8% cap and 0% floor on the indexed product. Indexed annuities trade away some upside for that floor, and typically carry their own surrender-charge schedule and optional-rider costs — this isolates the effect of the floor and cap, not a full product comparison.
"This is precisely the risk that guaranteed-income and guaranteed-death-benefit riders are built to offset — which is why they cost extra. The real question isn't whether that fee is high by itself, but whether the protection is worth the price for your goals, health, and need for guaranteed income."
Before You Make Any Changes
- Guarantees have value. Rider fees pay for real benefits — like income you can't outlive or a locked-in death benefit. Whether they're worth the cost depends on your goals and circumstances, not just the fee.
- Leaving isn't free. Surrendering this contract early may trigger the charge shown above.
- Taxes can apply. Withdrawing gains from a non-qualified annuity is generally taxed as ordinary income, and a 10% IRS penalty may apply if you're under 59½.
- Exchanging has its own reset. A 1035 exchange into a new annuity can defer taxes, but the new contract usually starts its own new surrender-charge period — compare total costs before switching, not just the pitch.
- This is an estimate. Actual terms vary by contract and insurer. Your prospectus, annual statement, or the insurance company can confirm your exact fees.
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