What investors can expect for annuities in 2025

By Elle Switzer, Director, Annuity Product Management

If you’ve been following the annuity market, you know it’s been on a historic run. Thanks to a surge of retiring baby boomers and high interest rates, annuity sales have shattered records, topping $1.1 trillion for the third year in a row.¹ But with recent market volatility and rising recession concerns, financial professionals are fielding more questions from clients worried about their retirement security.

As we move into 2025, shifting interest rates and unpredictable market conditions could shake things up, potentially cooling demand for traditional fixed annuities while driving more interest in index-linked options. While the Life Insurance Marketing and Research Association's (LIMRA) recent report offers critical insights into what lies ahead for annuities, it’s important to view these projections in light of evolving economic uncertainty.

Given the significant recent market volatility and the increased prospect of a recession, financial professionals are likely working with concerned clients — especially those on the cusp of retirement.

To navigate market volatility, financial professionals are using a variety of strategies and risk-management techniques to balance retirees’ income needs with long-term growth. In this environment annuities are gaining traction as reliable tools for stability and guaranteed income.

A strong foundation for growth

The unique economic environment of 2024 — characterized by rising but volatile equities and favorable interest rates — has acted as a catalyst for strong annuity sales. This momentum has been building since 2022, with annuities emerging as an attractive solution for consumers seeking stability in uncertain financial times. Despite expected shifts in economic conditions, annuities are well-positioned to remain a crucial component of retirement planning.

Key trends shaping the future (2024–2027)

While the market is poised for continued strength, several factors will influence annuity sales in the coming years:

1. Peaking momentum and interest rate adjustments

Thanks to a surge of retiring baby boomers and high interest rates, annuity sales have shattered records, topping $1.1 trillion for the third year in a row.¹

While lower interest rates will present challenges, they will also create opportunities for product innovation and strategic financial planning.

2. Continued demand for protected growth and guaranteed income

Fixed annuities, indexed annuities and registered index-linked annuities (RILAs) will remain highly sought after due to their ability to provide stability and long-term growth potential. The significant market volatility recently may fuel even higher demand for these annuities as investors seek protected growth options.

As millions of Americans reach retirement age each year, demand for guaranteed income solutions will continue to rise — especially as Gen X, the next wave of retirees, reaches their 60s.

Unlike many Baby Boomers who benefited from employer-sponsored pensions, a much larger share of Gen X lacks access to traditional defined benefit plans.² With more individuals responsible for creating their own retirement income, annuities are poised to play a crucial role in securing financial futures.

3. Evolving market dynamics and the role of technology

The increasing digitalization of the annuity industry will streamline research, comparison and purchasing processes, making annuities more accessible to consumers and financial professionals alike.

Advanced analytics and AI-driven tools will further enhance the customer experience, allowing for more personalized financial planning and product recommendations.

The impact of market conditions on annuity sales

The U.S. economy faces potential disruptions from geopolitical tensions, global market instability and recessionary pressures. Annuities remain a resilient investment option, offering stability amidst economic fluctuations.

• The Federal Reserve's anticipated rate reductions will lower short-term Treasury yields, impacting fixed-rate deferred annuity sales. However, longer-duration annuity products are expected to see increased demand as consumers seek alternatives with potential for higher yields.¹
• Despite projected declines in income annuity sales in 2025, favorable demographic shifts will counterbalance these trends, maintaining strong demand for retirement income solutions.¹

Annuity product sales forecast

LIMRA expects equity markets to remain strong in 2025, which they believe will lead to growth in RILA and Variable Annuity (VA) sales.³ They expect interest rates to continue to fall in 2025, negatively impacting sales of fixed-rate deferred annuity and income annuity sales, and Fixed-Indexed Annuity (FIA) sales to a lesser degree.³

• RILAs: Slight growth of 1–3%, with sales remaining at record levels, driven by investor interest in protected growth and strong equity markets.³
• Traditional VAs: Level or slight growth of 0–3% driven by strong equity markets, product innovation and increased interest from registered investment advisors.³
• Fixed-Rate Deferred Annuities: Sales declining -12 to -15% due to declining interest rates.³
• FIAs: Sales declining -6% to -10% from the record sales in 2024 driven by falling interest rates.³
• Income Annuities: Sales declining -10% to -12% due to falling interest rates.³

Sustaining momentum and seizing opportunities

As we move into the next phase of the annuity market, insurers and financial professionals must leverage technology and process improvements to enhance financial professionals and consumer experiences.

Looking ahead to 2026 and 2027, annuity sales are expected to stabilize, supported by:

• An increasing number of contracts reaching the end of their surrender charge period, creating a significant opportunity for reinvestment.
• Continued demand for structured retirement income solutions as more Americans enter retirement.
• LIMRA predicts equity markets to strengthen, boosting investor confidence and support for VA sales.¹

A positive outlook for annuities

The annuity industry has proven its ability to adapt and thrive in shifting economic landscapes. While 2025 may bring a temporary sales dip due to declining interest rates, the long-term outlook remains strong. The combination of demographic trends, technological advancements and evolving consumer needs will ensure that annuities continue to play a vital role in financial planning.

As we look forward, financial professionals should remain proactive, embracing innovation and strategic planning to optimize their business strategies. With a solid foundation built over the past three years, annuities are well positioned to move forward positively, offering security, growth and income for years to come.

Annuities can be highly effective tools when used in the right scenarios, learn more about TruStage Annuities.