Baby Boomers: Are Annuities a Good Retirement Strategy?

Many baby boomers are reaching retirement age, and those who have not yet retired are now making some of the most consequential financial decisions of their lives. The central question is the same for nearly all of them: where will the income come from?

The menu of options is broad. Social Security, stocks, bonds, and annuities all compete for a place in a retirement plan. Among these, annuities carry a distinctive appeal: the promise of income you cannot outlive. Yet appealing and appropriate are two different things, and the landscape for annuities has shifted considerably in recent years. Here is what you need to know before incorporating one into your retirement plan.

Are annuities a good option for your retirement?

There are genuine pros and cons to including an annuity as a source of retirement income. On the positive side:

• Guaranteed lifetime income: This is the single biggest advantage of selecting an annuity. You can buy a contract guaranteed to last for a set period, such as 10 or 20 years, or select one covering your own life or a joint life. Unlike a 401(k) balance, the income stream cannot be depleted by market losses or longevity.
• Tax-advantaged growth: During the accumulation phase, your annuity grows on a tax-deferred basis. With a non-qualified annuity, you can also receive a portion of your distributions tax-free in retirement, because the return of premiums you already paid is not taxed again.
• Sequence-of-returns protection: Annuities can act as a volatility buffer, shielding retirees from being forced to sell equities during market downturns. That protection helps preserve the longevity of the remaining investment portfolio.

The downsides are equally real and deserve careful attention:

• High fees and a weakened regulatory backstop: Annuities tend to carry significant administrative and management fees. On the regulatory front, the Department of Labor’s 2024 Retirement Security Rule was vacated by two federal district courts in Texas (Eastern District on March 12, 2026, and Northern District on March 17, 2026), and the rule was formally removed from the Code of Federal Regulations effective April 20, 2026. That vacatur restored ERISA’s original 1975 five-part test for fiduciary status, reverting oversight to an older, less stringent standard and placing greater responsibility on investors to vet broker recommendations independently.
• Limited liquidity: You typically cannot access your funds early without facing steep surrender charges. Cashing out an annuity within the first few years can cost as much as 10% of the contract value.
• Inflation risk: A fixed annuity delivers a payment that does not adjust over time. Unlike Social Security, which provides an annual cost-of-living adjustment (COLA), most fixed annuity payouts lose purchasing power steadily as prices rise.

The Modern Shift: “Peak 65” and the Rise of RILAs

The demographic backdrop driving annuity demand is striking. According to the Alliance for Lifetime Income, roughly 11,400 Americans turn 65 every day in 2025, amounting to approximately 4.1 million people reaching traditional retirement age in a single year. That pace is expected to continue through 2027. LIMRA describes this as the heart of the “Peak 65” wave, and the scale of demand shows up directly in the sales data: total U.S. annuity sales reached a record $464.1 billion in 2025, up 7% from 2024’s previous record of $432.4 billion, marking the fourth consecutive year of record sales. The momentum has carried into 2026 as well. In the second quarter of 2026, annuity sales reached a new all-time quarterly record of $123.9 billion, lifting the first-half 2026 total to $231.3 billion and surpassing the prior first-half record set just one year earlier.

Against that backdrop, product structures have shifted significantly. Rather than relying solely on traditional fixed or variable contracts, savers are increasingly turning to Registered Index-Linked Annuities (RILAs). These hybrid vehicles allow investors to capture market-linked growth up to a specified cap while embedding defined downside protection, such as shielding against the first 10% to 20% of market losses. RILA sales reached $79.6 billion in 2025, up 20% year-over-year and 10 times the sales recorded a decade ago, according to LIMRA. That marked the 11th consecutive year of RILA growth. Indexed products overall, combining RILAs and fixed indexed annuities, now represent 45% of total annuity sales, up from just 24% a decade ago. LIMRA projects RILA sales to exceed $85 billion in 2026, and early results support that trajectory: RILA sales jumped 21% year-over-year to $21.2 billion in the first quarter of 2026 alone, the 30th consecutive quarter of year-over-year growth for the product line.

The surge in annuity demand is partly a product of financial need. A study commissioned by the Alliance for Lifetime Income Retirement Income Institute found that more than half (52.5%) of boomers turning 65 between 2024 and 2030 have total assets of $250,000 or less. Given that retirement can easily stretch 20 years or more, a large share of this cohort risks outliving their savings and relying primarily on Social Security, which is designed to replace only about 40% of pre-retirement income on average.

Is an annuity right for you?

Guaranteed income is appealing, particularly for retirees without a pension. That said, savvy planners often compare annuity payout structures against equity-based alternatives, including dividend growth strategies, to evaluate which approach better suits their income needs and risk tolerance over the long run. There is no universal answer. Many retirees find the predictability of an annuity outweighs its costs and constraints, while others prefer the flexibility and inflation-fighting potential of a diversified portfolio. Carefully weighing both sides, with input from a qualified fiduciary advisor, is the most important step you can take.

Capital Deployment: Annuities vs. Dividend Growth Portfolios

Editor’s note: This update corrects 2024 total annuity sales from $434.1 billion to $432.4 billion (LIMRA’s final figure), and adds LIMRA’s Q2 2026 annuity data showing a new all-time quarterly record of $123.9 billion and a first-half 2026 total of $231.3 billion, along with RILA’s 21% year-over-year growth to $21.2 billion in Q1 2026 and the fact that indexed products now account for 45% of total annuity sales.

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