Who buys variable annuities?
"An annuity makes sense in a few different scenarios: In general, they are not the best deal around (and are often ripoffs), and will almost certainly be a bad deal if pitched by a tax preparer, insurance salesman, etc.  Keep in mind that any ""guarantees"" offered are guarantees made by an insurance company. The only backing up of that claim in the event of a company failing is protection from your state's Guaranty Association. (ie. not the Feds)" There is always some fine print, read it. I doubt there is any product out there that can guarantee an 8% return.  As a counter example - a 70 yr old can get 6% in a fixed immediate annuity. On death, the original premium is retained by the insurance company.  Whenever I read the prospectus of a VA, I find the actual math betrays a salesman who misrepresented the product. I'd be really curious to read the details for this one. "Two types of people: (1) Suckers (2) People who feel that investment advisors/brokers make too little money and want to help out by paying insane commissions. Think I'm kidding. Check out this article: ""Variable Annuity Pros and Cons"" Seriously, for 99% of us, they are a raw deal for everyone except the person selling them." I wrote a detailed answer about variable annuities on another question, but I want to include one specific situation where a variable annuity may be the right course of action. (For the sake of simplicity, I'm quoting directly from that answer): Three-quarters of US states protect variable annuity assets from creditors. Regular IRA's don't benefit from protection under the Employee Retirement Income Security Act (ERISA) and may therefore be more vulnerable to creditors. If you're a potential target for lawsuits, e.g. a doctor worried about medical malpractice suits, variable annuities may be an option for you. As always, you should consult a legal/tax professional to see if this might be a good option for you to consider. The SEC also has a fantastic publication on variable annuities that provides a great deal of information. It's not directly related to this question because it doesn't necessarily focus on the circumstances in which they might be a good fit for you, but it's educational nevertheless and should give you more than enough information to properly evaluate any policy you're looking to buy.
"Your relatively young age and the current very low bond interest rates make annuities a very poor buy. And most of the other suggestions you have mentioned have very low diversification, which exposes you to imprudent risks. Buying shares for dividend income can solve the diversification problem by averaging out your totals as different shares change by different amounts. There is no really good solution to the problem of share price volatility except to ignore it: Take your dividends and pretty much ignore the bouncing around of the share price. They usually recover in a year or three. Owning shares of companies that reliably increase their dividend payouts is the only investment type that gives you both diversification and regularly increasing income to counteract inflation over the years. Read some investment books and consider consulting with a financial advisor who charges a fee for the advice. I.e., you don't want ""free"" advice." The reason for such differences is that there's no source to get this information. The companies do not (and cannot) report who are their shareholders except for large shareholders and stakes of interest. These, in the case of GoPro, were identified during the IPO (you can look the filings up on EDGAR). You can get information from this or that publicly traded mutual fund about their larger holdings from their reports, but private investors don't provide even that. Institutional (public) investors buy and sell shares all the time and only report large investments. So there's no reliable way to get a snapshot picture you're looking for. This is literally the worst article ever.  First dividends are not guaranteed, and the higher the yield the higher the risk for a dividend paying stock. When buying a stock that pays dividends make sure they have the cash flows to cover it long term.  Utility stocks are interest rate sensitive. If we head into a period of high interest rates, utility stocks are going to underperform, if not get killed.  Exchange traded funds can be extremely risky, and some have much higher fees than mutual funds.  Variable Annuities should never be purchased unless you have exhausted all other tax deferred strategies, and then probably still to be avoided because of high fees.  Money markets and CDs aren't really investments. They're a cash alternatives that May not keep up with inflation. "(1) I think the phrase ""Variable Annuity"" is a glowing red flag. A corollary to that is that any strategy that uses insurance for a purpose (e.g. tax avoidance) other than protecting against loss rates at least a yellow flag. (2) The other really obvious indicator is a return that is completely out of whack with the level of risk they are saying the investment has. For example, if someone promises a 10% annual return that is ""Completely Safe"" or ""Very low risk"", Run. (3) If it is advertised on tv/radio, or all your friends are talking about it at parties. Stay away. Example: Investing in Gold Coins or the hot Tech IPO. (4) The whole sales pitch relies on past returns as proof that the investment will do well without any real discussion of other reasons it will continue to to well. Beware the gambler's fallacy. (5) Finally, be very wary of anyone who has some sort of great investment plan that they will teach you if you just pay $X or go to their seminar. Fee based advice is fine, but people selling a get rich quick vehicle typically know the real way to get rich is to get suckers to pay for their seminars." Also a layman, and I didnt read the article because it did the whole 'screw you for blocking my ads' thing. But judging from the title, I'd guess someone bought a massive amount of call options for VIX, the stock that tracks volatility in the market. Whenever the market crashes or goes through difficult times, the VIX fund prospers. The 'by october' part makes me think it was call options that he purchased: basically he paid a premium for each share (a fraction of the shares cost) for the right to buy that share at today's price, from now until october. So if the share increases in value, for each call option he has, he can buy one share at todays price, and sell it at the price it is that day. Options can catapult your profit into the next dimension but if the share decreases in value or even stays the same price, he loses everything. Vicious redditors, please correct the mistakes ive made here with utmost discrimination The example from the following website: Investopedia - Calculating The Present And Future Value Of Annuities  specifically the section 'Calculating the Present Value of an Annuity Due' shows how the calculation is made.  Using their figures, if five payments of $1000 are made over five years and depreciation (inflation) is 5%, the present value is $4545.95  There is also a formula for this summation, (ref. finance formulas) Instead of buying in bulk, I invest the money in equity mutual funds, for an expected return of 12%, which is more than inflation. So, I make more returns. But at the cost of a slight risk, which I'm comfortable with. Private investors as mutual funds are a minority of the market.  Institutional investors make up a substantial portion of the long term holdings.  These include pension funds, insurance companies, and even corporations managing their money, as well as individuals rich enough to actively manage their own investments.   From Business Insider, with some aggregation:   Numbers don't add to 100% because of rounding.  Also, I pulled insurance out of household because it's not household managed.  Another source is the Tax Policy Center, which shows that about 50% of corporate stock is owned by individuals (25%) and individually managed retirement accounts (25%).   Another issue is that household can be a bit confusing.  While some of these may be people choosing stocks and investing their money, this also includes Employee Stock Ownership Plans (ESOP) and company founders.  For example, Jeff Bezos owns about 17% of Amazon.com according to Wikipedia.  That would show up under household even though that is not an investment account.  Jeff Bezos is not going to sell his company and buy equity in an index fund.   Anyway, the most generous description puts individuals as controlling about half of all stocks.  Even if they switched all of that to index funds, the other half of stocks are still owned by others.  In particular, about 26% is owned by institutional investors that actively manage their portfolios.   In addition, day traders buy and sell stocks on a daily basis, not appearing in these numbers.  Both active institutional investors and day traders would hop on misvalued stocks, either shorting the overvalued or buying the undervalued.   It doesn't take that much of the market to control prices, so long as it is the active trading market.  The passive market doesn't make frequent trades.  They usually only need to buy or sell as money is invested or withdrawn.  So while they dominate the ownership stake numbers, they are much lower on the trading volume numbers.   TL;DR:  there is more than enough active investment by organizations or individuals who would not switch to index funds to offset those that do.  Unless that changes, this is not a big issue. There isn't a general reason why you should not be able to do this, but it is hard to answer without knowing the specifics of your variable annuity.   I would start by calling Hartford and asking them how to go about rolling your money to a different IRA and what fees would be assessed. "There are a few questions that need qualification, and a bit on the understanding of what is being 'purchased'. There are two axioms that require re-iteraton, Death, and Taxes. Now, The First is eventually inevitable, as most people will eventually die. It depends what is happening now, that determines what will happen tomorrow, and the concept of certainty. The Second Is a pay as you go plan. If you are contemplating what will heppen tomorrow, you have to look at what types of ""Insurance"" are available, and why they were invented in the first place. The High seas can be a rough travelling ground, and Not every shipment of goods and passengers arrived on time, and one piece. This was the origin of ""insurance"", when speculators would gamble on the safe arrival of a ship laden with goods, at the destination, and for this they received a 'cut' on the value of the goods shipped. Thus the concept of 'Underwriting', and the VALUE associated with the cargo, and the method of transport. Based on an example gallion of good repair and a well seasoned Captain and crew, a lower rate of 'insurance' was deemed needed, prior to shipment, than some other 'rating agency - or underwriter'. Now, I bring this up, because, it depends on the Underwriter that you choose as to the payout, and the associated Guarantee of Funds, that you will receive if you happen to need to 'collect' on the 'Insurance Contract'. In the case of 'Death Benefit' insurance, You will never see the benefit, at the end, however, while the policy is in force (The Term), it IS an Asset, that would be considered in any 'Estate Planning' exercise. First, you have to consider, your Occupation, and the incidence of death due to occupational hazards. Generally this is considered in your employment negotiations, and is either reflected in the salary, or if it is a state sponsored Employer funded, it is determined by your occupational risk, and assessed to the employer, and forms part of the 'Cost-of-doing-business', in that this component or 'Occupational Insurance' is covered by that program. The problem, is 'disability' and what is deemed the same by the experience of the particular 'Underwriter', in your location. For Death Benefits, Where there is an Accident, for Motor Vehicle Accidents (and 50,000 People in the US die annually) these are covered by Motor Vehicle Policy contracts, and vary from State to State. Check the Registrar of State Insurance Co's for your state to see who are the market leaders and the claim /payout ratios, compared to insurance in force.  Depending on the particular, 'Underwiriter' there may be significant differences, and different results in premium, depending on your employer. (Warren Buffet did not Invest in GEICO, because of his benevolence to those who purchase Insurance Policies with GEICO). The original Poster mentions some paramaters such as Age, Smoking, and other 'Risk factors'.... , but does not mention the 'Soft Factors' that are not mentioned.  They are, 'Risk Factors' such, as Incidence of Murder, in the region you live, the Zip Code, you live at, and the endeavours that you enjoy when you are not in your occupation. From the Time you get up in the morning, till the time you fall asleep (And then some), you are 'AT Risk' , not from a event standpoint, but from a 'Fianancial risk' standpoint. This is the reason that all of the insurance contracts, stipulate exclusions, and limits on when they will pay out. This is what is meant by the 'Soft Risk Factors', and need to be ascertained. IF you are in an occupation that has a limited exposure to getting killed 'on the job', then you will be paying a lower premium, than someone who has a high risk occupation.  IT used to be that 'SkySkraper Iron Workers', had a high incidence of injury and death , but over the last 50 years, this has changed. The US Bureau of Labor Statistics lists these 10 jobs as the highest for death (per 100,000 workers). The scales tilt the other way for these occupations: (In Canada, the Cheapest Rate for Occupational Insurance is Lawyer, and Politician) So, for the rest in Sales, management etc, the national average is 3 to 3.5 depending on the region, of deaths per 100,000 employed in that occupation. So, for a 30 year old bank worker, the premium is more like a 'forced savings plan', in the sense that you are paying towards something in the future. The 'Risk of Payout' in Less than 6 months is slim. For a Logging Worker or Fisher(Men&Women) , the risk is very high that they might not return from that voyage for fish and seafood. If you partake in 'Extreme Sports' or similar risk factors, then consider getting 'Whole Term- Life' , where the premium is spread out over your working lifetime, and once you hit retirement (55 or 65) then the occupational risk is less, and the plan will payout at the age of 65, if you make it that far, and you get a partial benefit. IF you have a 'Pension Plan', then that also needs to be factored in, and be part of a compreshensive thinking on where you want to be 5 years from today." Accredited investors are required to have 1 million in assets (not including primary residence) or $200,000/yr income for the last 3 years. These kinds of regulations come from the SEC, not the company involved, which means the SEC thinks it's a risky investment. If I recall correctly, [someone I know] had to submit evidence of being an accredited investor to trade options on [his] IRA. It may be that this is related to the classification of the options. Some investors (pension funds or insurance companies) need to pay out a certain amount of money to their clients. They need cash on a periodical basis, and thus prefer dividend paying stock more. See the following information: http://www.bogleheads.org/wiki/Treasury_Inflation_Protected_Security You can buy individual bonds or you can purchase many of them together as a mutual fund or ETF. These bonds are designed to keep pace with inflation.  Buying individual inflation-protected US government bonds is about as safe as you can get in the investment world. The mutual fund or ETF approach exposes you to interest rate risk - the fund's value can (and sometimes does) drop. Its value can also increase if interest rates fall. "This answer is provided mostly to answer your question ""what is it?"" A variable annuity is a contract between you and an insurance company. The insurance company takes a bunch of money up front as a lump sum, and will pay you some money yearly - like earning interest. (In this case, they will probably be paying you the money into the account itself). How much they return is, as the name suggests, variable. It can be anything, depending on what the contract says. Mostly, there will be some formula based on the stock market - frequently, the performance of the Standard & Poors 500 Index. There will typically be some minimum returns and maximum returns - if the stock market tanks, your annuity will not lose a ton of value, but if the stock market goes up a lot in one year (as it frequently does), you will not gain a lot of value either. If you are going to be in the market for a long amount of time (decades, e.g. ""a few years out of college"" and then a little), it makes a lot more sense to invest in the stock market directly. This is essentially what the insurance company is going to do, except you can cut out the middleman. You can get a lot more money that way. You are essentially paying the insurance company to take on some stock market risk for you - you are buying some safety. Buying safety like this is expensive.  Variable annuities are the right investment for a few people in a few circumstances - mostly, if you're near retirement, it's one way to have an option for a ""safe"" investment, for a portion (but not all) of your portfolio. Maybe. Depending on the specifics, a lot. If you are under, like, 50 or so? Almost certainly a terrible investment which will gradually waste your money (by not growing it as fast as it deserves to be grown). Since you want to transfer it to Vanguard, you can probably call Vanguard, ask to open a Roth IRA, and request assistance rolling it over from the place it is held now. There should be no legal restrictions or tax consequences from transferring the money from one Roth IRA account to another." "The end result is basically the same, it's just a choice of whether you want to base the final amount you receive on your salary, or on the stock market. You pay in a set proportion of your salary, and receive a set proportion of your salary in return. The pension (both contributions and benefit) are based on your career earnings. You get x% of your salary every year from retirement until death. These are just a private investment, basically: you pay a set amount in, and whatever is there is what you get at the end. Normally you would buy an annuity with the final sum, which pays you a set amount per year from retirement until death, as with the above. The amount you receive depends on how much you pay in, and the performance of the investment. If the stock market does well, you'll get more. If it does badly, you could actually end up with less. In general (in as much as anything relating to the stock market and investment can be generalised), a Defined Benefit plan is usually considered better for ""security"" - or at least, public sector ones, and a majority of people in my experience would prefer one, but it entirely depends on your personal attitude to risk. I'm on a defined benefit plan and like the fact that I basically get a benefit based on a proportion of my salary and that the amount is guaranteed, no matter what happens to the stock market in the meantime. I pay in 9% of my salary get 2% of my salary as pension, for each year I pay into the pension: no questions, no if's or buts, no performance indicators. Others prefer a defined contribution scheme because they know that it is based on the amount they pay in, not the amount they earn (although to an extent it is still based on earnings, as that's what defines how much you pay in), and because it has the potential to grow significantly based on the stock market. Unfortunately, nobody can give you a ""which is best"" answer - if I knew how pension funds were going to perform over the next 10-50 years, I wouldn't be on StackExchange, I'd be out there making a (rather large) fortune on the stock market."