In recent years, a wave of retiring baby boomers and high interest rates have helped fuel record-breaking sales in the annuity market.
From 2022 to 2024, annuity sales topped $1.1 trillion, according to Limra, a global research organization for the insurance industry. In 2023 alone, annuity sales increased 23 percent over the prior year. Overall, annuity sales are up 70 percent since 2014, Limra reports.
No-frills fixed annuities with a three-year guaranteed interest rate — akin to a certificate of deposit (CD) — are offering up to 5.85 percent in January 2025, compared to the top three-year CD rates of 4.65 percent. Meanwhile, payouts from pension-like immediate annuities are up double-digits compared to their pre-pandemic levels.
But the outlook for annuities in 2025 is less clear. Limra is forecasting a “mixed bag” for annuity sales.
With more potential interest rate cuts on the horizon, straightforward fixed annuities — which tend to be less complicated than other options on the market — may become less appealing to consumers due to their waning rates. In their place, other varieties, such as index-linked annuities, may see a bump as consumers seek to capture market growth.
So how do these industry trends impact your annuity options? Here’s what you need to know if you’re in the market for an annuity in 2025.
Why have annuity sales been soaring?
Consumer interest in annuities began picking up in 2022, when portfolios with traditional stock/bond allocations took a 17.5 percent hit. For many baby boomers nearing or already in retirement, the gut punch of 2022’s simultaneous stock and bond wipeout became a catalyst to explore the income guarantees of annuities.
“There was a lot of interest in taking risk off a portfolio,” says Bryan Hodgens, head of Limra research.
From March 2022 to July 2023, the Federal Reserve hiked interest rates from 0.25 percent to 5.5 percent. These rate hikes gave insurance companies room to offer more appealing terms on fixed and fixed-index annuities.
“Interest rates on fixed annuities also rose, making them an attractive investment,” says Hodgens.
Even after the stock market rebounded, netting a 24 percent gain in 2023, lingering fears of a recession kept annuities in the spotlight. Many investors were drawn to the opportunity to lock in some of the highest annuity crediting and payout rates in nearly 20 years.
Other factors also contributed to the annuity sales boom, including more banks now offering the products, says Sheryl J. Moore, CEO of Wink Inc., an insurance market research firm.
“Consumers are hearing about annuities more than they would’ve in the past,” she says.
It’s also easier to buy an annuity than it used to be. Numerous online marketplaces make it easy to compare options, and insurance companies have streamlined their sign-up process, says Moore.
“Literally, you can apply for an annuity with your agent through an iPad and the annuity is approved after completing an online form,” Moore says. “It used to take weeks to get an annuity through the issue process.”
What to expect from fixed annuities in 2025
Fixed annuities have propelled the recent growth in the annuity market, representing over 40 percent of sales in 2023.
Fixed annuities guarantee a set interest rate over a specific period, much like CDs, but typically with better returns.
But Limra is expecting a pull back in the popularity of fixed annuities in 2025. Sales of fixed-rate deferred annuities are expected to drop 15 percent to 25 percent as interest rates decline.
Still, fixed annuities haven’t lost their sparkle quite yet and are offering conservative investors an attractive return of more than 5 percent — for now.
Unlike variable annuities, which tie payouts to market performance, fixed annuities provide a set rate, so there’s no risk of losing your initial investment, making them a reliable choice for risk-averse investors. There’s also no need for sub-accounts or portfolio management. What you see (the promised rate) is what you get.
Meanwhile, variable annuities often come with a laundry list of fees — mortality expenses, administrative costs and investment management charges, to name a few. Fixed annuities keep it lean, making them a simpler, less expensive choice.
The golden hour for fixed annuities is waning, though, tipping the scales in favor of other annuity products that promise bigger potential returns — even if they come with more strings attached.
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Fixed-index annuities in 2025
Fixed-index annuities (FIAs) broke sales records for the third year in a row in 2024. Sales have nearly doubled since 2021, according to Limra.
Fixed-index annuities guarantee your principal while tying performance to market indexes — such as the S&P 500 — with predetermined caps on gains.
If the market performs well, you share in the gains up to a certain point. But if the market declines, the annuity’s guarantees ensure you won’t lose money already credited to your account. You’ll enjoy modest growth during strong market years — though you’ll never capture the full upside of a bull market.
In the past, caps ranged from 6 to 8 percent annually, but in recent years, caps have risen to as high as 11 to 12 percent. However, caps can vary based on the insurer, and aren’t likely to stay high forever.
“As interest rates have been coming down lately and are expected to come down further in 2025, we would anticipate the cap or participation rates to also come down,” Hodgens says.
Hodgens anticipates FIAs will remain attractive in 2025, but if you’re in the market for a fixed-index annuity, there are a few things to watch out for.
FIA contracts are often dense and complicated, filled with jargon about caps, spreads and participation rates. It can be difficult to understand how much potential upside you can actually capture, and contracts can get bogged down with riders and other guarantees that drive up cost and/or reduce returns.
Since 2012, insurance companies have been developing so-called “hybrid indexes” that effectively combine one or more other indexes, along with a cash or bond component.
These indexes often tout the most attractive rates in the market, but Moore says that because these indexes are so new, they often have no performance history. So in theory, these hybrid indices aim to smooth out the highs and lows of a volatile market, but in reality, they’ve often fallen short for consumers.
“Many of these indices have returned little to nothing over the past couple of years,” Moore says. That’s a tough pill to swallow, considering the S&P 500 posted gains of 24 percent in 2023 and 23 percent in 2024.
So if you’re in the market for a FIA this year, look for an annuity tied to a well-known index, such as the S&P 500. Make sure to ask the agent or advisor to clearly explain all the terms, including how much upside will be credited to your account and how long you can expect that rate to last.
Single premium immediate annuities in 2025
Higher interest rates also make traditional immediate income annuities, such as single premium immediate annuities (SPIAs), more appealing than they were a few years ago.
SPIAs begin payouts immediately and typically require a large upfront payment to fund the contract.
While SPIAs can provide guaranteed income for life, they can also deliver guaranteed income for a specific number of years. That makes these products dynamic tools in retirement planning: Early retirees, for example, can purchase a SPIA with a period certain of five or eight years to act as a bridge until they begin claiming Social Security benefits.
Like fixed annuities, SPIAs tend to be a straightforward, no-frills option for consumers. But like fixed annuities, the income SPIAs generate will become less appealing as rates fall.
As carriers drop their payout rates on these products, Limra is expecting a 10 percent cut for income annuity sales in 2025.
If you’re in the market for a SPIA, it’s important to compare quotes from multiple insurers. Payout rates may be declining, but the annuity market remains highly competitive. The more you research and shop around, the more likely you are to find a reputable insurer willing to give you a decent rate.
Variable annuities in 2025
Variable annuities once dominated the market, but that’s changed in a big way. These products suffered their worst sales on record in 2023, dropping 17 percent compared to 2022, according to Limra.
Sales of variable annuities rebounded to $60 billion in 2024 but Limra is projecting sales to remain level in 2025.
Unlike fixed annuities, which offer downside protection, or FIAs, which balance safety with some growth potential, variable annuities provide little to no protection from market loss— unless riders are tacked on at an added cost.
For investors whose top priority is preserving capital, variable annuities simply don’t measure up. These products are also notoriously complex with a history of high fees and hefty surrender charges.
Prior to the financial crisis of 2008, variable annuities featured highly competitive living and death benefit riders as insurers competed for customers, says Moore. But when the market collapsed, these riders became liabilities for insurers because their guaranteed values exceeded the annuity account values.
“So insurance companies repriced their riders to have less attractive features for a higher price,” says Moore.
While the industry has made some efforts to improve transparency and reduce costs, the product’s past has soured many consumers and financial advisors, who still view variable annuities with skepticism.
If you’re considering buying a variable annuity in 2025, proceed with caution. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have issued warnings about these products over the years. The SEC emphasizes their high costs and complexity while FINRA advises investors to watch out for aggressive sales tactics. Variable annuities also rank among the top sources of consumer complaints filed with FINRA.
Registered index-linked annuities in 2025
The newest breed of annuities — registered index-linked annuities — are filling a gap in the market once dominated by variable annuities.
The first RILA launched in 2010. They link returns to a stock index, like fixed-index annuities, while offering greater exposure to both gains and losses, making them higher risk, like a variable annuity.
RILAs are the new golden child of the annuity industry. In the fourth quarter of 2023, RILA sales outpaced variable annuity sales for the first time, and the pattern held in 2024 with RILA sales topping $62 billion.
RILAs continue to shine, in part, because they charge few if any explicit fees, unlike variable annuities. Yet, RILAs offer consumers much higher caps than fixed-index annuities.
How can insurance companies afford to do this? Insurers make money in other ways off RILAs, usually by paying investors less than what they earn on their investments, according to a review by the SEC.
While RILAs sound like a great deal — what’s not to love about higher potential returns with fewer fees? — it’s important to know what you’re signing up for if you’re in the market this year.
RILAs remain a complicated choice for consumers. For example, the wide range of crediting methods used by RILAs can make it difficult to compare one product to another.
Higher caps on returns also come with a trade-off: You take on some risk of loss beyond a set floor or buffer. This buffer shields your account from the first portion of losses, usually 10 to 20 percent, but after that, you’ll lose money.
Here’s how it works: If the buffer is 10 percent and the market dips by 5 percent, your account value doesn’t take a hit. But if the market drops by 20 percent, as it did in 2022, the buffer covers the first 10 percent, and you absorb the remaining 10 percent as a loss to your account value.
Additionally, some index-linked annuities, including RILAs, allow the issuer to change details about the contract — including fees and interest caps. FINRA cautions investors to read their contract carefully to see if it gives the insurance company the ability to change these elements.
And like FIAs, hefty surrender charges apply if money is withdrawn from the account within the first several years. As the SEC points out, you’d need to hold the annuity through the full surrender period, wait until you’re at least 59½ before withdrawing funds and only take withdrawals at the end of each investment option’s term in order to avoid penalties.
Bottom line
The annuity market has thrived in recent years thanks to high interest rates and an influx of retirees seeking protection from market downturns. But the landscape is shifting. As interest rates decline, fixed annuities may lose some appeal, while products such as fixed-index annuities and RILAs gain traction.
If you’re in the market for an annuity in 2025, shop carefully, compare options from the best annuity companies and prioritize simplicity and transparency to find the right fit for you.
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