How annuities address the growing income gap

Most retirement income strategies solve one problem well. They provide certainty, protect the principal and create predictable cash flow.

Where things start to break down is what happens around these income strategies. That’s where the annuity income gap comes into focus.

This gap is revealed when a strategy delivers guaranteed income but no longer aligns with the way individuals think about their money. Protection still matters. Income still matters. Participation in growth now matters as much.

This tension leads to more conversations that must be held, especially among individuals in the 60 to 75 age group who want to lock in income without feeling as though they’re giving anything up.

Recent data reinforces the disconnect. More than half of preretirees and retirees say they’re concerned about running out of income in retirement, yet fewer than 1 in 5 own an annuity designed to address the risk. 

Fixed indexed annuities are gaining traction in this space because they help bridge part of that disconnect. Not completely, but in a way that feels more aligned with real-world priorities.

This alignment is shown in LIMRA’s data. U.S. annuity sales reached $461.3 billion in 2025, with indexed products accounting for roughly 45% of total volume. FIA sales alone surpassed $128 billion, reflecting a continued shift toward solutions that balance protection and growth.

Where the annuity income gap shows up in real conversations

Traditional fixed annuities, certificates of deposit and bond ladders continue to do their job. Predictability isn’t the issue. The disconnect shows up when expectations expand beyond that.

Across conversations, the same themes come up consistently:

» Income must last longer than it used to.

» Inflation still plays a part, even when it’s not dominating headlines.

» Sitting on the sidelines during market growth feels like a real trade-off.

» Flexibility carries more weight than locking into a rigid structure.

Put those together, and a gap forms between what traditional fixed strategies deliver and what individuals expect.

FIAs tend to enter the conversation right at this intersection. They offer principal protection while linking interest potential to market-indexed crediting, which helps narrow that gap. It doesn’t eliminate the gap, but it moves closer to balance.

How income design in FIAs is helping close the gap

The newer generation of FIA income riders reflects the evolution of expectations.

Now the conversation goes beyond simply generating income. It centers on how income fits into a broader strategy that can adjust over time.

When evaluating these structures, a few elements stand out:

» Guaranteed lifetime income to support essential expenses.

» Deferral features that reward waiting to activate income.

» Flexibility around timing so income aligns with real needs.

» Structures are designed to work effectively for both individuals and couples.

These enhancements don’t change the purpose of annuities. They improve the way in which that purpose shows up in practice.

This refinement makes FIAs more practical in planning conversations, especially for individuals who want predictability without feeling locked into a single path.

Where registered index-linked annuities fit in the same conversation

RILAs often come up alongside FIAs, but they solve a different problem. 

FIAs emphasize protection with growth tied to market performance. Buffer strategies allow a defined level of downside in exchange for more upside potential. That creates a different set of trade-offs:

» FIAs align with individuals who prioritize principal protection.

» Buffer strategies appeal to those comfortable taking some risk for additional growth.

» Both can support a broader strategy depending on the objective.

Each approach addresses a different part of the same challenge.

The annuity income gap arises when income, growth, risk and flexibility must work together. No single solution handles all of that on its own.

Addressing the debate around FIA illustrations

Illustrations tend to be the point at which conversations either gain clarity or lose it.

The concern is straightforward. Projected outcomes can be misunderstood, especially when they’re compared directly to fixed rates. Clarity comes from how those illustrations are handled. A consistent approach includes:

» Separating guaranteed elements from nonguaranteed projections.

» Explaining caps, participation rates and spreads in plain terms.

» Positioning illustrations as scenarios instead of expectations.

» Keeping the focus on income objectives instead of hypothetical returns.

When handled this way, illustrations support rather than complicate. This reflects a broader responsibility: helping individuals understand their options clearly without overstating outcomes or creating confusion.

How FIAs are positioned alongside bonds and CDs

The most productive conversations aren’t framed around which option wins. They’re framed around what part each option plays:

» Bonds and CDs provide defined returns and predictable timelines.

» FIAs offer principal protection with the opportunity for index-linked growth.

» Income riders introduce longevity protection that traditional fixed instruments don’t directly address.

This framing shifts the discussion from comparison to coordination. FIAs don’t replace traditional fixed strategies. They complement them.

Closing the annuity income gap comes down to combining tools in a way that reflects multiple priorities instead of forcing one solution to do everything.

A more complete approach to retirement income

The annuity income gap arises when income strategies focus solely on certainty and overlook how individuals think about growth, flexibility and long-term opportunity.

FIAs are gaining momentum because they help bring those elements into the same conversation. 

For financial professionals, the opportunity is straightforward: Define the gap, explain the trade-offs and build strategies that reflect how people make real-world decisions.

That approach supports more informed income-planning conversations, stronger relationships and greater client confidence across the board — which ultimately is what helps close the gap. 

Jay Thudium is the director of annuity product and advanced strategies at AmeriLife. Contact him at [email protected].