Certain surrender fees, however, refuse to vanish. With one of these, you'll pay a penalty if you decide not to annuitize your payments upon retirement. Unless you're approaching retirement age, it's best to flee from a two-tier annuity, Shine advises. The underlying investments within a variable annuity will be mutual funds. You should check the yearly expense ratios for annuities as well as traditional mutual funds.
Fees can dramatically erode returns over time.
If you are investing in a fixed annuity, you need to know how financially sound the insurance carrier is. You might assume that your money is protected within a fixed annuity, but there's no real guarantee. That's because the money in a fixed annuity is not segregated and therefore can be at risk if the insurer declares bankruptcy. Look for escape hatches. Depending upon your employer's plan, you can switch to an annuity offered by a different insurer or to traditional mutual funds.