Are annuities at a crossroads?

The annuity industry has experienced a remarkable surge over the past three years, driven by rising interest rates, demographic shifts and increased demand for income security. In 2024, U.S. annuity sales reached a record $432.4 billion, marking a 12% increase from the previous year and the third consecutive year of record-breaking sales. However, as we move into 2025, the industry faces economic uncertainties and shifting interest rates.

The boom years

Several factors contributed to the annuity market’s expansion from 2022 to 2024. The Federal Reserve’s interest rate hikes enhanced the appeal of fixed-rate deferred annuities, which offered competitive yields compared to traditional savings vehicles. In addition, market volatility and the 2022 downturn prompted investors to seek stability, leading to increased interest in products that provide guaranteed income. The aging baby boomer population further fueled demand, as many sought reliable income streams for retirement.

Registered index-linked annuities and fixed indexed annuities also saw significant growth, appealing to investors desiring market participation with downside protection. In 2024, RILA sales reached $65.2 billion, a 33% increase from the previous year, while FIA sales climbed 31%, to $125.5 billion.

2025: A year of transition

As we look ahead, the annuity market may be facing a period of adjustment. LIMRA projects total annuity sales in 2025 to range between $364 billion and $410 billion, a potential decline from 2024’s peak. This anticipated slowdown is primarily attributed to expected interest rate cuts, which could diminish the attractiveness of FRDAs. Sales of these products are forecasted to decrease by 15% to 25% in 2025.

Despite this, certain segments are expected to remain resilient. RILAs and FIAs, offering a blend of growth potential and protection, are likely to maintain strong sales. LIMRA anticipates RILA sales will stay at or be slightly above 2024 levels, supported by continued investor interest in products that mitigate market risks while providing growth opportunities.

Strategic considerations 

In this evolving environment, financial advisors must adapt their strategies to meet client needs effectively.

» Product diversification: With potential declines in FRDA attractiveness, the emphasis may be on RILAs and FIAs, which may offer more appealing features in a lower-interest-rate context.

» Client education: As the playing field becomes more complex, educating clients on the benefits and limitations of various annuity products will become even more important than ever.

» Timing and rate lock-in: With economic unknowns ahead, clients may be looking to lock in current rates before possible declines.

» Technological integration: Digital tools and platforms to streamline processes and enhance client engagement are becoming more important in order to stay competitive.

The annuity industry stands at a pivotal juncture in 2025. While the unprecedented growth of recent years may cool down some, opportunities remain for those who navigate the shifting landscape with education, insight and adaptability.