Annuity sales are booming — but not the ones best for lifetime income
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People who save for retirement have a common goal: to build an adequate nest egg to prevent running out of money in old age.
One way to do this for retirees is to provide a guaranteed income stream that they can no longer outlive; this is deposited into their bank account every month for the rest of their lives, like a paycheck.
At a time when workplace retirement plans have largely disappeared, annuities can serve as an alternative for retirees seeking pension-like income, financial planners say.
However, financial planners said that in general, the types of income insurance best suited for business — deferred income annuities, or DIAs, and single-premium immediate annuities, or SPIAs — are not the types that consumers often buy.
That’s largely due to consumer behavior, said Scott Witt, an actuary and fee-only insurance consultant based in New Berlin, Wisconsin.
“Americans have a hard time embracing annuities as a form of income source [longevity] “It’s insurance, and they continue to think of it as an investment,” Witt said.
Annuity sales climb to mid-’65s
Lee Baker, a certified financial planner and founder of Claris Financial Advisors in Atlanta, said he expects “concern” about the Iran war and stock market volatility driving up annuity sales.
“Whether we like it or not, some of the growth in annual incomes overall is certainly driven by the uncertainty that a lot of people are feeling right now,” Member Baker said. CNBC’s Council of Financial Advisors.
What are SPIAs and DIAs?
Single-premium immediate annuities and deferred income annuities share the same basic premise: A buyer gives a lump sum of money, perhaps hundreds of thousands of dollars, to an insurer, which then guarantees a regular payment for life.
Payment with SPIA starts immediately. Those who choose DIA will begin receiving income at a predetermined age, perhaps age 70 or 75.
These are generally the “easiest” and “cheapest” annuities and offer the “best bang for your buck,” meaning they often have higher monthly payments than other types, such as variable annuities and indexed annuities, Baker said.
“For your average consumer who is concerned about the possibility of falling behind on their income, a SPIA or DIA makes a lot of sense,” Baker said. “They provide some certainty at a low cost and definitely add ground to your lifestyle [in retirement]”
But these are among the least popular types of annuities.
Why are variable, indexed annuities more popular?
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Consumers purchased approximately $5 billion of DIA and $14 billion of SPIA in 2025, according to Limra.
Consumers purchased $63 billion worth of variable annuity insurance and a record $128 billion of indexed annuities last year, Limra reported.
Variable annuities and indexed annuities are more like investment accounts. The former is more stock-like, the latter more bond-like, with returns limited on both the upside and downside, financial planners said.
But financial planners said consumers often purchase these annuities with optional insurance that gives consumers the option to earn income later for life. They generally cost higher and are more complex, they said.
But flexibility is often a key selling point: Planners said these annuities generally allow consumers to retain some access to their money after they hand it over to the insurance company, albeit with restrictions that impose fees and penalties for the unwary.
“The fees are very high,” and falling foul of the fine print can be “pretty punitive,” Witt said.
But SPIAs and DIAs, by comparison, typically do not allow financial access after consumers pay a lump sum to the insurance company, planners said.
Americans have a hard time embracing annuities as a form of income. [longevity] insurance and they continue to think of it as an investment.
Scott Witt
actuary and paid insurance consultant
“Most people are incredibly uncomfortable buying these products that are inherently irrevocable,” said David Blanchett, CFP, head of retirement planning for insurer Prudential Financial.
Similarly, the possibility of handing over large sums of money to an insurer and then dying with little to show for it is often a big behavioral hurdle for people, said Zach Teutsch, founder of Values Added Financial in Washington.
“When dealing with annuitization decisions, depending on the structure [the annuity]Saying, ‘I’ll give you my life savings, and if I die tomorrow, you’ll be way ahead,’ is just a terrifying prospect for most people,” said Teutsch, a member of CNBC’s Council of Financial Advisors.
How to think about annuities?
But Witt said that’s not a good way to think about the choice to buy SPIA or DIA.
Instead, consumers need to frame their choices more with an insurance mindset: “You didn’t die broke,” Witt said.
“The entire time you were alive, you had the peace of mind that you couldn’t outlive your money,” he said.
While the long-lasting protection offered by SPIAs and DIAs is “hard to beat,” Witt said he’s not sure they will always offer the best payouts. He said some annuities with indexed annuities or variable annuities may offer a better payout in certain situations.
Experts said there may be other use cases as well.
For example, some consumers who are concerned about the risk of needing long-term care and want to bypass the cost of traditional long-term care insurance or the need for medical coverage can purchase certain income supports that offer a benefit similar to long-term care, Baker said. In this case, a monthly amount larger than the annual income can be paid if long-term need arises, he said.
“I understand there are additional complexities with some products that provide lifetime income benefits,” Blanchett said. “But we can’t argue that complexity should always be a barrier to doing things.”
When it comes to lifetime income, Blanchett said everyone should aim to cover the “absolute minimum” of basic living expenses with an income stream they can’t live on. Don’t forget to calculate inflation.
First step Consider delaying claiming Social Security, he said.
People who delay filing for Social Security past full retirement age will be able to increase their benefits by 8% per year until age 70. They will be counting on this higher sum for the rest of their lives.
“But if you’re like, ‘What’s the next thing that’s that easy?’ “This is buying a SPIA or DIA,” Blanchett said.
