A surrender charge is a penalty fee you pay if you withdraw money from an annuity or certain other insurance products during the early years of the contract, typically within the first 5-10 years after purchase. These charges are designed to discourage early withdrawals and compensate the insurance company for the upfront costs and commissions they paid when you bought the annuity.

Surrender charges usually follow a declining schedule that decreases over time. For example, a typical surrender charge schedule might be 7% if you withdraw in year one, 6% in year two, declining by one percentage point each year until it reaches zero after seven years. This period is called the "surrender period." Some contracts allow you to withdraw up to 10% of your account value each year without triggering surrender charges, giving you some access to your money for emergencies.

Before purchasing any annuity, understand the surrender charge schedule completely—how much the charges are, how long they last, and what exceptions exist. If you might need access to this money in the near future, an annuity with a long surrender period isn't appropriate. However, if you're certain this money is for long-term retirement income and won't need to touch it, surrender charges shouldn't be a major concern—they'll eventually expire, and you'll have full access. The key is making informed decisions based on your actual liquidity needs and time horizon.