Variable annuities (VA) are an insurance product that is best described as a mutual fund wrapped in an insurance wrapper and covered with fees.
It isn’t uncommon to hear arguments that “a doctor in a high tax bracket should invest in a VA instead of in mutual funds in a taxable account.” That argument, of course, is almost always made by someone who sells VAs for a living.
If the chief upside of investing in a VA is tax-deferred growth , then the chief downside is that when you pull the money out it is taxed at your ordinary income tax rates rather than the lower capital gains/dividends rates a mutual fund would get.
If I own a mutual fund in a taxable account, I can sell it any day the market is open and buy another one or just take the proceeds, pay taxes on them, and purchase a boat.
Most VAs are chock-full of poor investment choices. The “sub-accounts” (mutual-fund like investments within a variable annuity) are often poorly-performing, actively managed funds with little incentive to keep fees low.
Annuities are supposed to be long-term investments. With a fixed annuity, the insurance company takes your money and puts it into longer-term investments, like stocks and bonds, then pays you each month.