Millions of Americans are buying annuities at a record pace as fears of outliving retirement savings grow. But experts say choosing the wrong contract could cost you tens of thousands of dollars in lost income.
America’s retirement wave is creating one of the biggest booms the annuity industry has ever seen.
As record numbers of Baby Boomers leave the workforce and traditional pensions continue to disappear, investors are pouring hundreds of billions of dollars into products designed to provide guaranteed lifetime income.
The appeal is obvious. Many retirees worry less about stock market volatility than one simple question: Will my money last as long as I do?
Annuities promise to answer that question. But financial professionals warn that not all annuities are created equal, and choosing the wrong one can significantly reduce retirement income.
Annuity Sales Are Breaking Records
The demand for guaranteed retirement income has exploded.
Insurance industry data shows Americans purchased $464 billion worth of annuities last year, marking another record for the industry. Sales have remained strong this year, surpassing $100 billion during the first quarter alone.
The surge comes as roughly 4.2 million Americans reached retirement age in 2025, one of the largest retirement waves in U.S. history.
Unlike previous generations that often relied on employer pensions, today’s retirees increasingly depend on Social Security, personal savings, and investment portfolios to generate income.
That’s driving demand for products that function like a personal pension.
Income Guarantees Have Improved Dramatically
Higher interest rates have made today’s annuities far more attractive than they were just a few years ago.
For a 60-year-old investing $200,000 and beginning lifetime income at age 70, some of today’s leading fixed indexed annuities offer annual guaranteed income of roughly $33,700, according to industry data.
That’s approximately:
- 6% higher than last year’s leading offers.
- More than 50% higher than comparable payouts available in 2022.
Those larger guaranteed payments have become a major selling point for retirees seeking predictable income.
But higher payouts don’t necessarily mean every annuity is a good deal.
The Biggest Mistake Investors Make
Financial advisors consistently warn against focusing on just one insurance company or one type of annuity.
That’s because payout differences can be dramatic.
For example, some fixed indexed annuities currently offer substantially higher lifetime income guarantees than many variable annuities or registered index-linked annuities (RILAs).
However, those larger guarantees often come with tradeoffs.
Products offering the highest guaranteed income may limit future upside if the stock market performs exceptionally well. Others may include restrictions, fees, or complicated contract provisions that aren’t immediately obvious.
Simply chasing the highest advertised payout can backfire if the product doesn’t match your financial goals.
Don’t Ignore the Fine Print
One of the most overlooked aspects of annuities is how long your money may be locked up.
Many contracts include surrender periods lasting anywhere from five to ten years.
During that time, withdrawing more than the allowed amount can trigger significant surrender charges.
Some indexed annuities also advertise attractive participation rates or return caps that are guaranteed for only the first year. Afterward, the insurance company may reset those limits, potentially reducing future growth while your money remains subject to surrender penalties.
Before purchasing any annuity, investors should understand:
- How long the surrender period lasts.
- Whether interest rate caps can change.
- All rider fees and annual charges.
- Any limitations on withdrawals.
- How income guarantees actually work.
The highest advertised return often comes with hidden compromises.
Extra Features Aren’t Always Worth Paying For
Many annuities now offer optional riders that promise additional benefits.
These can include:
- Long-term care enhancements.
- Larger death benefits for heirs.
- Income growth guarantees.
- Enhanced lifetime withdrawal features.
While these options may sound attractive, they almost always come at a cost.
Some riders charge annual fees of 1% or more, while others reduce the contract’s growth potential or future income payments.
Experts recommend deciding exactly what problem you’re trying to solve before adding optional features.
If your primary goal is guaranteed retirement income, paying extra for benefits you may never use could reduce your overall return.
Many Buyers Never Use What They Paid For
One surprising industry statistic stands out.
Research has found that a large percentage of annuity owners who purchase lifetime income riders never actually activate them.
That means they paid annual fees for years without receiving the benefit those fees were designed to provide.
If income isn’t part of your retirement strategy, paying ongoing costs for an income rider may make little financial sense.
Likewise, delaying lifetime income longer than necessary can reduce the total lifetime value many retirees ultimately receive.
Shop Around Before You Sign
Perhaps the biggest lesson from today’s annuity market is that comparison shopping matters.
Different insurers can offer dramatically different:
- Lifetime income guarantees.
- Contract fees.
- Investment options.
- Withdrawal flexibility.
- Financial strength.
Working with an advisor who represents multiple insurance companies instead of a single carrier can provide access to a much broader range of options.
Because annuities are long-term insurance contracts that may last decades, experts also recommend choosing companies with strong financial ratings and a long history of meeting their obligations.
The Bottom Line
Annuities can play an important role in retirement planning, especially for investors seeking predictable lifetime income alongside Social Security.
But they aren’t one-size-fits-all products.
The differences between contracts can be enormous, and focusing only on the highest payout, lowest fee, or flashiest feature can lead to expensive mistakes.
For retirees worried about running out of money, taking the time to compare products, understand the tradeoffs, and match an annuity to their actual retirement goals may be just as important as deciding whether to buy one in the first place.
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