The biggest disadvantage of an annuity is illiquidity. Once you put money in, it’s typically locked up for years, and pulling it out early triggers steep surrender charges from the insurer plus a possible 10% IRS penalty if you’re under 59½.
On top of that, annuities often carry high fees: mortality and expense charges, administrative fees, and costs for optional riders can quietly erode returns over time. Many products are also complex, making it hard to compare options or understand exactly what you’re paying for.
Finally, returns on certain annuities (like fixed or indexed types) can lag what you might earn investing directly in the market, especially after fees are factored in.