On the surface, an annuity seems to be the most basic of investment contracts. For a set amount of years you pay the annuity - then when you need it, the annuity starts to pay you back.

There are a lot of advantages to annuities. Anyone can invest in one. There is no limit to the amount you can contribute to the annuity in a given year. They can pay you a dividend for life, or for a fixed number of years, and there is a death benefit for your heirs.

That having been said, while annuities can for many be a valuable addition to a retirement investment portfolio, there are some disadvantages to them Primarily the downside of annuities is that relatively, they tend to be more expensive then other types of investments, largely due to the fees and penalties associated with them.

Typical Expenses for Annuities

There are several typical fees associated with annuities that lead many financial planners to consider them "high maintenance". These may include:

• Commissions - Most annuities are sold by brokers or agents on a commission basis – these commissions typically run as high as 10%
• Surrender Charges - Not to be confused with "early withdrawal penalties", which you can also face if you take out any money from an annuity before the age of 59 ½.Most annuities have "surrender charges for pulling money out in the first few year the contract is in effect. Surrender chargers usually are incurred on a sliding scale starting at 7% for the first year, and going down a percentage point each year for seven or eight years until they get to zero
• Annual fees - Variable Annuities come with several annual fees, including insurance fees, maintenance fees, and fees for additional riders, all of which can ad up to 1.5 – 3%, or more.

However the good news is you can find annuities with little or no fees. These are called "Direct Annuities" and as the name implies, they can be purchased directly by you - the consumer, without the need to go through a broker or agent. Some companies that sell direct annuities include: Schwab, Fidelity, T. Rowe Price Vanguard, Ameritas Life and TIAA-CREF.