Annuities are in increasingly high demand as financial services companies offer more plan options and uncertainty looms over the economic landscape.
Insurance companies are growing uneasy about the US economy. A little over half (52%) of specialists surveyed by Goldman Sachs cited inflation as a major risk, and 48% say they expect a slowdown and potential recession by the end of the year.
That could leave room for an expanded appetite for income-oriented investments, such as annuities, which lock in guaranteed asset gains regardless of what the economy and markets do.
“A recession in late 2025 or 2026 is a valid concern,” said Evan Patzer, a retirement strategist at LifeWealth Solutions in Columbus, Ohio. “We’ve got high interest rates, inflation still lingering, and signs of slowing growth. It wouldn’t surprise me at all if we were hit with a recession.”
Annuities offer savers and investors stability in roiling economies. “People want safety when things feel unstable,” Patzer said. “Annuities give peace of mind, guarantee income, and come with no market downside. That’s attractive when everything else feels risky, especially during economic uncertainty.”
Annuities Likely to Spike in Popularity Amid Economic Uncertainty
Two particular annuity models stand out in volatile economies:
- Fixed Index Annuities
- Lifetime Income Annuities
Each offers a unique way to protect and grow retirement savings while providing stability when markets fluctuate. As economic uncertainty rises, these products are drawing more attention from investors looking for predictable income and long-term financial security.
Fixed Index Annuities
Fixed indexed annuities can be a reliable option during times of economic uncertainty. “These types of annuities protect your money but still give you upside if the market does well,” Patzer noted. “Plus, you can add income riders for guaranteed lifetime income, if needed.”
Fixed index annuities provide stable revenue, regardless of market fluctuations, offering relief to individuals concerned about market instability. “In a fixed annuity, the value doesn’t change according to the market, thus one can depend on a constant flow of income,” said Rami Sneineh, Vice President at Insurance Navy in Palos Hills, Illinois. “Although they might not give better returns than the variable annuities, the security they provide during uncertain economic times cannot be matched.”
Lifetime Income Annuities
Given the higher interest rates and the aggressive pricing insurance companies are offering, annuities that offer lifetime income make good sense for many people.
“Often called longevity annuities, lifetime income products typically translate into longer time horizons, which can amplify the benefits of the higher interest rates,” said Aaron Brask, principal at Aaron Brask Capital, in Lake Worth, Florida.
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Avoid These Mistakes When Shopping For the Right Annuity
Buying the right annuity can be a complex process and should be done with the aid of a trusted financial advisor or insurance professional. Applying these strategies to your annuity campaign should also pay dividends.
Avoid the Marketing Pitches
One of the biggest mistakes Brask sees that consumers make with annuities is falling for the marketing around product bonuses.
“Many annuity products offer large, upfront bonuses of 25% or 30%,” he said. “However, these bonuses are not real cash you can take to the bank. They typically only apply when using an income rider for lifetime income.”
Moreover, there is another parameter, often referred to as a withdrawal rate, that ultimately determines the level of guaranteed income. “Unfortunately, this parameter is generally very low and can offset the impact from the upfront bonuses,” Brask added.
Don’t Rush the Decision
Consumers who rush into an annuity contract without understanding the terms and its long-term implications are making a significant mistake.
“Remember, fees, surrender charges, and lack of flexibility are common with annuities,” Sneineh said. “Too many people lack the understanding of what it means to tie their money down over many years of lockout of other investing options.”
Additionally, consumers often overlook the impact of inflation, which can erode the purchasing power of their annuity income over time. “Buyers should ensure that the annuity fits well in their financial objectives and circumstances,” Sneineh added.
Don’t Go the Variable Route
Another big error annuity buyers make is to wedge a variable annuity inside an IRA.
“The variable annuity is still fully at risk in the market and usually has higher fees than other advisor-managed investment portfolios,” said Aaron Freedman, financial strategist at Mass Mutual in Meridian, Idaho. “Since the IRA is already tax-deferred, the tax deferral of the variable annuity doesn’t add any value in a retirement account.”
Not Understanding the Surrender Period
Understanding the surrender period of any annuity is essential, too.
“That’s the period where the money will only be partially accessible without penalty for early withdrawals,” Freedman said. “Therefore, putting too much money or money that is needed in the short term into an annuity could be a mistake. A good advisor should be able to help explain the pros and cons to make the best decision.”
Chasing Yield Without Understanding the Fine Print
“High bonus rates or eye-catching illustrations can distract from long lockup periods, punishing surrender charges, or unrealistic market assumptions,” said Brian Crater, CEO at American Independent, a financial services firm in Cleveland, Ohio. “Another major misstep is failing to coordinate annuities with other parts of a retirement income plan. Annuities should complement, not replace, other income streams.”
Ensure That You Vet the Annuity Provider
Consumers interested in a good annuity deal must also focus on the financial stability and reputation of the insurer. “The claims-paying ability of the company has to be assessed, and annuity products with long-term objectives sought,” Sneineh said. “Consumers should also consider fees and the flexibility of the product. Using the services of a seasoned annuity professional is always a wise step before entering into an annuity, as he or she understands how the annuity will fit in your overall financial strategy.”
