While annuities may provide the benefits listed above, they often receive criticism from consumer groups and finance experts. One of the most frequently cited disadvantages of traditional annuities is that most charge high up-front fees and take commissions in advance of you receiving any benefits. So right away, the amount you had saved to invest in the annuity is reduced significantly, which leaves you with smaller income payments. These fees often include investment management, as well as rider and contract fees, which can run up to 2% of your account’s value. In addition, some annuities charge surrender fees if you make more withdrawals than allotted or if you want to withdraw funds within the first few years of your contract. , Another noteworthy disadvantage is that many annuities are tax-deferred and withdrawals are taxed as ordinary income. Depending on your tax bracket, your regular income tax rate could be much higher than the capital gains tax rate you would pay for long-term investment gains. , These are just a few common downsides of annuities. Depending on the type of annuity you select, there could be even more issues that arise over time. Luckily, there are a few annuity alternatives that might better suit your specific needs.