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Annuities Are Selling Like Crazy—Here’s Exactly When They Help Middle-Class Retirees

Kerri Foley

November 25, 2025

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Over the past three years, a seismic shift has occurred in the American retirement landscape. Between 2022 and 2024, individuals poured more than $1.1 trillion into annuities, a class of insurance products long met with a mixture of interest and deep suspicion. 

The momentum is only building. In 2024 alone, total annuity sales surged to a record-breaking $434.1 billion, a 13% jump from the previous year. For the first time in history, sales surpassed the $100 billion mark in all four quarters of the year. 

This is not a niche trend confined to the ultra-wealthy; it is a mainstream financial phenomenon that poses a critical question for millions of middle-class households: Why are so many people turning to one of finance’s most debated products, and are they making the right choice?

The Great Annuity Boom: A Perfect Storm for a Polarizing Product

The unprecedented surge in annuity sales is not a random market event but the result of a convergence of powerful economic, demographic, and psychological forces.

Understanding these drivers is essential to grasping why these products have moved from the periphery to the center of the retirement planning conversation.

The Data Story: A Market Transformed

The numbers paint a vivid picture of a market undergoing a structural transformation. According to data from LIMRA, which surveys 92% of the U.S. annuity market, 2024’s record $434.1 billion in sales marked the third consecutive year of record-breaking growth. 

This sustained momentum suggests a fundamental shift in consumer demand rather than a temporary fad. Projections indicate this is a new normal, with LIMRA forecasting total sales to remain well above $350 billion in 2025 and stay above the $300 billion threshold through 2027.

Beneath the headline numbers, a more nuanced story of shifting investor sentiment emerges. In 2023, the market was dominated by Fixed-Rate Deferred (FRD) annuities, simple products that function much like bank certificates of deposit (CDs) and became highly attractive as the Federal Reserve raised interest rates. 

The Three Forces Driving the Boom

Three primary catalysts have created this perfect storm for annuity sales.

1. Demographic Destiny

The most powerful and predictable force is a simple matter of demographics. The U.S. population aged 65 and over is projected to expand by a massive 7.5 million people between 2023 and 2027. This demographic wave represents the core target market for annuity products, as research shows annuity buyers tend to be around age 65. 

What makes this cohort of retirees historically unique is the near-total absence of traditional defined-benefit pensions.

For generations prior, corporations managed the complex risks of market volatility and longevity for their employees. Today, that responsibility has been almost entirely transferred to the individual. 

2. Economic Anxiety

The financial psyche of today’s retiree has been shaped by a series of market shocks. The S&P 500’s precipitous 19.4% decline in 2022—its worst performance since the 2008 financial crisis—served as a brutal reminder of the vulnerability of equity-heavy portfolios, particularly for those at or near retirement. 

This was not an isolated event; continued volatility, including sharp market selloffs in early 2025, has deepened investor anxiety and made many retirees profoundly uneasy about relying solely on systematic withdrawals from their stock and bond portfolios. 

3. The Interest Rate Effect

The final catalyst was the dramatic rise in interest rates orchestrated by the Federal Reserve between 2022 and 2023. This swift policy action had a direct and immediate impact on the annuity market.

As rates climbed, insurance companies were able to offer far more attractive terms on their fixed annuity products. Suddenly, no-frills fixed annuities were offering guaranteed yields significantly higher than those available from comparable bank CDs, drawing in a flood of risk-averse capital. 

Part II: Defining the “Middle-Class” Retiree in 2025: A Tale of 50 States

Before any meaningful discussion of whether an annuity is a suitable tool, it is essential to define the target user with precision. The term “middle-class” is widely used but often poorly defined, and in the context of retirement planning, national averages can be dangerously misleading.

A financial strategy that makes sense for a retiree in a low-cost area may be entirely inappropriate for one in an expensive coastal city.

The National Benchmark

Academically, the most cited definition comes from the Pew Research Center, which classifies “middle-income” households as those with an annual income that is two-thirds to double the national median, adjusted for household size.

Based on this methodology, the national middle-income range for a three-person household in 2022 was approximately $56,600 to $169,800.

Other organizations use a simpler, broader definition; for instance, the Transamerica Institute defines the middle class as households with an annual income between $50,000 and $199,999.

While these benchmarks provide a useful starting point, their utility is limited because they fail to account for one of the most significant factors in retirement security: cost of living.

The Geographic Reality Check

The financial reality of a middle-class retirement is not a single number but a wide spectrum that varies dramatically by location. An analysis of U.S.

Census Bureau data starkly illustrates these disparities. In Detroit, Michigan, a household can be considered middle class with an income as low as $25,384, with the upper bound at just $76,160.

In stark contrast, to be considered middle class in the high-cost suburb of Arlington, Virginia, a household needs an income between $93,470 and a staggering $280,438.

Table 1: The Middle-Class Income Spectrum Across America (2023 Data)

The Financial Profile of the Target Retiree

Synthesizing these data points, a clear persona of the middle-class retiree for whom this analysis is most relevant emerges. This individual is likely:

• Approaching or in their 60s, having reached the critical transition from accumulating wealth to distributing it.
• Holding the vast majority of their retirement savings in tax-deferred accounts such as a 401(k) or a traditional IRA.
• Lacking a corporate pension, meaning their only existing source of guaranteed, inflation-adjusted income is Social Security.
• Grappling with the central challenge of modern retirement: how to safely and efficiently convert a lump-sum nest egg into a reliable income stream that can last for an uncertain lifespan of 20, 30, or even 40 years.

It is for this individual—facing this specific set of challenges and living within one of the many diverse middle-class realities—that the question of an annuity becomes most pressing.

Decoding the Annuity Menu: A Plain-English Guide

One of the greatest barriers to making an informed decision about annuities is their complexity.

The industry has developed a wide array of products, each with its own unique mechanics, costs, and trade-offs. For the middle-class retiree, understanding the four main types driving the current market is essential.

The Four Core Flavors for Today’s Retiree

1. The Protector (Fixed Indexed Annuity – FIA)

Pitched as offering the best of both worlds, FIAs have become immensely popular, with sales reaching $126.9 billion in 2024. Their core appeal is the promise of principal protection combined with the potential for growth linked to the stock market.

Mechanics: With an FIA, the retiree’s money is not directly invested in the market. Instead, the insurance company credits interest to the account based on the performance of a market index, such as the S&P 500.

If the index has a positive year, the account is credited with a portion of that gain. If the index has a negative year, the account value does not decrease; it simply earns zero interest. This “zero is your hero” feature provides absolute protection of the initial principal from market downturns.

The Catch (Caps, Spreads, and Participation Rates): This downside protection is not free. The insurance company pays for it by significantly limiting the retiree’s participation in the market’s upside. This is accomplished through several mechanisms that must be clearly understood:

2. The Hybrid (Registered Index-Linked Annuity – RILA)

RILAs are the fastest-growing segment of the market, appealing to retirees who are willing to accept a limited amount of downside risk in exchange for a much higher potential return.

3. The Pension-Maker (Single Premium Immediate Annuity – SPIA)

The SPIA is the most traditional and straightforward type of annuity. It is designed to solve one problem: the immediate need for guaranteed income.

4. The Market Player (Variable Annuity – VA)

Variable annuities were once the dominant product in the market but have seen their popularity wane due to their direct exposure to market risk and typically high fee structures.

Table 2: Annuity Comparison Matrix

The Litmus Test: Four Scenarios Where an Annuity Can Be a Smart Move

Moving from theory to practice, the true value of an annuity can only be assessed in the context of a specific financial problem it is intended to solve.

For a middle-class retiree, an annuity is rarely the right solution for their entire portfolio, but it can be a highly effective tool when used surgically to address a particular need. Here are four common retirement scenarios where a carefully chosen annuity can be a smart strategic move.

Scenario 1: Creating a “Personal Pension” to Cover Essential Expenses

The Problem: A recently retired couple, both age 67, has done a thorough budget. They calculate that their essential, non-discretionary monthly expenses—including their mortgage, property taxes, utilities, food, and Medicare premiums—total $3,000.

Their combined Social Security benefits will provide $2,000 per month, leaving a critical $1,000 gap. They have a healthy 401(k) balance but are deeply anxious about relying on volatile market withdrawals to cover these fundamental needs, especially after the market downturn of 2022.

The Annuity Solution: The couple works with a fiduciary financial advisor to allocate a portion of their 401(k) funds to purchase a Single Premium Immediate Annuity (SPIA). They structure it as a “joint and survivor” policy, which will generate a guaranteed monthly payment of exactly $1,000 for as long as either of them is alive.

The Benefit: This strategy effectively creates a “personal pension.” By combining their Social Security with the SPIA payment, they have now secured a total of $3,000 in guaranteed monthly income, perfectly matching their essential expenses. This creates a solid income floor that is immune to stock market fluctuations.

Scenario 2: The “Social Security Bridge” Strategy

The Problem: A 62-year-old individual is ready to retire from a long career. They understand that while they can claim Social Security benefits now, each year they delay up to age 70 results in a permanent 8% increase in their future monthly payments.

The Annuity Solution: Instead of claiming Social Security early, the individual uses a portion of their savings to purchase a “period certain” SPIA. This is a specific type of immediate annuity designed to pay out a set income for a fixed number of years—in this case, eight years, to bridge the gap from age 62 to 70.

The Benefit: The annuity provides the necessary income to live on during the bridge period, allowing their larger investment portfolio to remain intact and grow.

At age 70, the annuity payments stop, and they turn on their maximized Social Security benefit, which is now significantly higher than it would have been had they claimed at 62.

Scenario 3: The Conservative Investor Seeking “CD-Plus” Returns

The Problem: A retiree is extremely risk-averse. The thought of losing any of their hard-earned principal in a stock market crash is unacceptable. As a result, they keep a large portion of their nest egg in bank CDs and money market accounts.

While they feel safe, they are frustrated by the low returns, which are barely keeping pace with inflation, and they worry about their purchasing power eroding over time. They want the potential for better growth but are unwilling to take on direct market risk.

The Annuity Solution: The retiree allocates a portion of their “safe money” from CDs into a Fixed Indexed Annuity (FIA) with a competitive cap rate and a strong, highly-rated insurance carrier.

The Benefit: The FIA directly addresses their conflicting desires. The core feature of the FIA is that their principal is protected from market downturns; they cannot lose money due to index performance. This satisfies their primary need for security.

At the same time, the FIA offers the potential to earn interest linked to stock market gains, providing a significantly higher potential return than a traditional CD or savings account, albeit with that upside potential being capped.

Scenario 4: Longevity Insurance for the Healthy and Worried

The Problem: A healthy couple, both age 65, have a family history of living well into their 90s. While this is good news, it creates a significant financial fear: the prospect of running out of money after a 30-plus-year retirement.

This “longevity risk” is one of the most difficult challenges in retirement planning, as it is impossible to predict one’s own lifespan.

The Annuity Solution: The couple decides to address this risk head-on by allocating a percentage of their assets to purchase a joint-life SPIA. This contract will provide a guaranteed income stream that continues, without reduction, as long as either spouse is alive.

The Benefit: This is the purest form of “longevity insurance.” The annuity effectively pools their risk with thousands of other individuals. Some annuitants will pass away earlier than average, and the funds they contributed are used to continue payments to those who live longer than average.

By buying into this pool, the couple ensures they can never outlive this portion of their income. This directly mitigates the primary fear of financial destitution in deep old age, a risk that is exceptionally difficult and inefficient to manage with an investment-only strategy.

Buyer Beware: Navigating the Annuity Minefield

While annuities can be powerful tools in specific situations, they are also fraught with potential pitfalls.

The complexity, costs, and illiquidity of many products demand a high level of diligence from any potential buyer. Understanding these risks is not just advisable; it is essential for consumer protection.

The Fee Iceberg: What You Don’t See Can Hurt You

The most common criticism leveled against annuities is their cost structure, which can be both high and opaque. These costs can significantly erode investment returns over the long term.

Commissions: A fundamental truth of the annuity market is that these products are almost always sold by an agent, not bought by a consumer.

This sales process is driven by commissions, which are built into the product’s pricing. The commission structure can create a powerful conflict of interest.

For simple products like SPIAs or Multi-Year Guaranteed Annuities (MYGAs), commissions are relatively low, typically in the 1% to 3% range.

Internal Costs: Beyond the upfront commission, many annuities, particularly variable and indexed types, have layers of ongoing internal fees that act as a persistent drag on performance.

Table 3: The Anatomy of Annuity Costs

The Liquidity Trap: Your Money Is Locked Up

Perhaps the most significant trade-off when purchasing an annuity is the loss of liquidity. An annuity contract is, for the most part, an irrevocable decision. The funds allocated are no longer readily accessible for emergencies or other opportunities.

Attempting to withdraw money early, beyond a small contractually allowed percentage, will trigger substantial surrender charges. These penalties can be as high as 10% or more of the contract's value in the initial years and typically decline gradually over a "surrender period" that often lasts six to eight years, and sometimes much longer.

This makes it critically important that any money placed into a deferred annuity is capital that the retiree is certain they will not need to access for a long time. It should never be considered part of an emergency fund.

The Fine Print Perils

Beyond fees and illiquidity, several other risks are often buried in the dense legal language of annuity contracts.

Complexity: The intricate nature of modern indexed annuities, with their various crediting methods, buffers, floors, caps, and participation rates, creates a significant information asymmetry between the seller and the buyer.

It is exceedingly difficult for the average person to fully grasp the mechanics and accurately compare one product against another, a fact that can be exploited by unscrupulous sales agents.

Inflation Risk: The core promise of a fixed annuity—a predictable, unchanging payment—is also its greatest long-term weakness.

A monthly payment of $2,000 might seem sufficient today, but over a 20- or 30-year retirement, its real purchasing power will be dramatically eroded by even modest inflation.

Insurer Risk: An annuity's guarantee is only as strong as the financial health of the insurance company that issues it. While state guaranty associations provide a backstop, this protection is not the same as FDIC insurance on a bank account.

Coverage limits vary by state and may not cover the full value of a large annuity contract. Therefore, it is imperative for consumers to investigate the financial strength ratings (from agencies like A.M. Best, Standard & Poor's, and Moody's) of any insurer they are considering.

Conclusion: A Specialized Tool, Not a Swiss Army Knife

The record-breaking $1.1 trillion flow of assets into annuities over the past three years is a clear signal of a retirement landscape in flux. It reflects a generation grappling with increased longevity, market volatility, and the absence of traditional pensions, leading to a profound search for financial security.

The analysis indicates that an annuity is not an inherently "good" or "bad" product. Instead, it is a highly specialized financial tool designed to solve a very specific problem: the risk of outliving one's income.

The wisdom of purchasing one hinges entirely on whether that specific problem is the most pressing one for a retiree's unique financial situation, and whether the benefits of the solution outweigh its considerable costs and constraints.

However, the path to a successful annuity purchase is narrow and requires extreme diligence. The industry's complexity, high-commission sales model, and the products' inherent illiquidity create a minefield for the uninformed consumer.

To navigate this safely, a retiree must shift their mindset from that of a passive buyer to an active, informed investigator. This involves asking tough, direct questions to any advisor or agent recommending a product.