Annuities are booming — here’s what could fuel the next wave

Annuities have been the hottest retail investment product by far over the last five years. Can the trend continue?

When LIMRA reported that U.S. annuity sales doubled from $219 billion in 2020 to $434 billion in 2024, many in the industry were stunned by the scale and speed of the growth.

Bryan Hodgens, head of LIMRA Research, and Jason Fichtner, executive director of the Retirement Income Institute at the Alliance for Lifetime Income, tackled the issue this week in a wide-ranging online discussion. Their conclusion: a second doubling is possible, but it will require a combination of favorable economic conditions, shifting demographics, advisor adoption, and a reframing of how consumers think about annuities.

Hodgens pointed to rising interest rates as the most influential factor behind the last five years of growth. The 10-year Treasury, which hovered around 0.5% in March 2020, averaged 4.2% in 2024. That created a surge in demand for fixed-rate deferred annuities, whose sales more than tripled during the period. Volatility in equity markets also nudged investors toward products offering downside protection, spurring record sales of registered index-linked annuities (RILAs) and fixed index annuities.

Capital availability played a role as well. A Swiss Re study found that one-quarter of insurers are now backed by private equity. That influx of capital gave carriers the balance sheet strength to support higher sales volumes.

Demographic pressures

Fichtner emphasized that demographic pressures could prove an even bigger driver going forward. The U.S. is now entering the “peak 65” years, with more than 11,000 baby boomers turning 65 every day between 2024 and 2027. By the end of the decade, for the first time, there will be more Americans over age 65 than under 18.

At the same time, the decline of traditional pensions leaves retirees heavily reliant on defined contribution plans and Social Security. With Social Security’s trust funds projected for depletion in 2033, many are looking for new ways to guarantee lifetime income.

“When people say they don’t like annuities, I ask them if they like Social Security,” Fichtner noted. “Social Security is an annuity. That framing helps people understand the value of protected income.”

Another promising sign: attitudes toward annuities appear to be shifting. Eight years ago, media mentions were overwhelmingly negative, according to Fichtner. Today, more than 85% of coverage is favorable, often emphasizing annuities’ role in creating protected income. LIMRA research shows younger investors are more open as well—nearly 60% of affluent Americans aged 25 to 45 report being familiar with annuities, and seven in 10 say they would consider converting some savings into guaranteed income.

Increased client inquiries

On the advisor side, demand from clients is changing the conversation. LIMRA found four in 10 advisors report increased client inquiries about annuities. Two-thirds say they are adjusting recommendations to address concerns about inflation, market volatility, and longevity risk.

Despite these tailwinds, significant hurdles remain. Advisors cite long sales processes and complex paperwork as deterrents. Both speakers argued technology and fintech platforms will be critical to streamlining transactions and building financial planning tools that make annuities easier to integrate. Workplace retirement plans may also be the next frontier, with target-date funds embedding annuity options as defaults.

“Could we double again? Maybe even more,” Fichtner said. “If plan sponsors begin routinely offering annuity options in defined contribution plans, the market could expand dramatically.”

The next five years will test whether economic conditions, consumer demand, and industry innovation can align to replicate the extraordinary growth of the past half-decade. For now, the industry appears cautiously optimistic that annuities’ moment is far from over.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].