1. What are my fees?
A variable annuity contract most often contains fees, including but not limited to, mortality and expense risk charges (M&E), administrative fees, underlying fund expenses and other asset-based fees. Variable annuities also typically have surrender charges, which apply if the contract holder sells the contract or withdraws excess money during a specified period of time after the contract is purchased. Your financial advisor should be able to provide the total expense ratio, which is the percentage stated in the prospectus and includes most fees except for brokerage commissions and sales charges.
On an average variable annuity contract, the total expenses were $559 per $25,000 investment, according to Morningstar Annuity Research Center's semi-annual report on fees. Fees for optional benefits, such as the death benefit, are extra.
Once you identify the total annual cost for the variable annuity, determine if you are getting a good value for the cost.
Keep in mind that annuities have an insurance component. One of the benefits you buy is protection against the risk that you would lose your money in the market. It can be hard to value that protection, but Cortazzo, whose firm, MACRO Consulting Group, charges $199 to evaluate three annuity contracts for consumers, suggested thinking of it as you would insurance on another valuable asset. "Most homeowners lose money on their homeowner's insurance, but it may be the best money ever spent for the homeowner who has a house fire," he said.
(Read more: The limits of Obama's MyRA retirement plans)