Baby Boomers: Are Annuities a Good Retirement Strategy?

Many baby boomers are reaching the age when it is time to retire, if they have not retired already. That means they need a clear plan for where their retirement income will come from.

There are many potential income sources boomers can choose from, including Social Security, stocks, bonds, and annuities.

As you prepare for your retirement years and try to decide where your living money will come from, annuities can seem especially attractive. They offer a guaranteed source of funds you do not have to worry will run out. But are they really the best choice given today’s shifting regulatory and economic landscape?

Here is what you need to know about annuities if you are considering incorporating them into your retirement plans.

Are annuities a good option for your retirement?

There are genuine pros and cons to including an annuity as a source of retirement income. Some of the advantages include:

• Guaranteed lifetime income: This is the single biggest advantage of selecting an annuity. You can buy one guaranteed to last for a set period, such as 10 or 20 years, or you can select a contract guaranteed to last for the duration of your own life or for a joint life. Unlike money in a 401(k), you will not have to worry about the funds running out.
• Tax-advantaged growth: During the accumulation phase, your annuity can grow on a tax-deferred basis. With a non-qualified annuity, you can also collect a portion of your distributions tax-free in retirement, since 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.

Of course, there are downsides as well. Some of the key disadvantages include:

• High fees and a weakened regulatory backstop: Annuities tend to carry significant administrative and management fees. On the regulatory front, two federal district courts in Texas formally vacated the Department of Labor’s 2024 Retirement Security Rule in March 2026, and the rule was officially removed from the Code of Federal Regulations effective April 20, 2026. That vacatur restored ERISA’s original 1975 five-part test for determining 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, a pace expected to continue through 2027. LIMRA describes this as the heart of the “Peak 65” wave, and the numbers show up directly in sales figures: total U.S. annuity sales reached a record $464.1 billion in 2025, up 7% from 2024’s previous record of $434.1 billion, marking the fourth consecutive year of record sales.

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, and LIMRA projects sales to exceed $85 billion in 2026.

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 adds LIMRA’s full-year 2025 U.S. annuity sales total of $464.1 billion, RILA sales of $79.6 billion for 2025 (up 20% year-over-year), the Alliance for Lifetime Income’s finding that more than half of Peak 65 boomers hold $250,000 or less in total assets, and clarifies that the DOL’s 2024 Retirement Security Rule was vacated by two Texas federal courts in March 2026 and formally removed from the Code of Federal Regulations effective April 20, 2026.

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