Variable Annuities Carry 2.5–3.5% Annual Drag That Rarely Clears the Index-Fund Bar

Variable annuities invest in the same equities as low-cost index funds but bury 1.0–1.5% mortality charges plus 0.5–1.0% guaranteed-benefit rider fees inside the contract. That 2.5–3.5% annual drag means the portfolio must generate sustained alpha inside its subaccounts just to match a plain vanilla index fund—an empirically unlikely outcome. MarketWatch examined this pitch in June 2026.