Annuities Are Hot Sellers During Volatile Markets. What You Need to Know
The most popular annuities protect against all or some losses, while offering either fixed yields or returns linked to a stock market index.
When market volatility spikes, so does interest in annuities. For risk-averse investors—especially retirees or those nearing retirement—annuities offer a rare combination of growth potential and principal protection. In a year when inflation, interest rate uncertainty, and geopolitical turmoil continue to unsettle the markets, annuity sales are surging to historic highs.
According to LIMRA, a life insurance industry research organization, total annuity sales in the U.S. reached over $385 billion in 2023, a record-setting figure. Much of that growth is driven by one product category: fixed indexed annuities (FIAs), which now account for a significant portion of new contracts. But are annuities right for you?
Here’s what you need to know before considering these often misunderstood financial products.
What Is an Annuity, Really?
An annuity is a contract between an investor and an insurance company. In exchange for a lump sum or series of payments, the insurer promises to grow the money and/or pay out income in the future. Some annuities offer guaranteed income for life, while others focus on asset growth and principal protection.
Annuities come in many flavors, but during volatile periods, two types rise to the top:
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Fixed Annuities: These provide a guaranteed interest rate over a set period, like a multi-year certificate of deposit (CD), but usually with higher yields and tax-deferred growth.
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Fixed Indexed Annuities (FIAs): These tie your returns to the performance of a stock market index (like the S&P 500), with a cap or participation rate limiting gains. However, they also include a floor (often 0%) that protects against losses—even if the market tanks.
Why Are Annuities So Popular Right Now?
In uncertain markets, the appeal of downside protection is hard to overstate. Many investors, especially those burned by 2022's dual stock and bond sell-off, are reluctant to fully re-enter equities or accept low-yield bonds.
FIAs and similar annuity products offer a "middle ground":
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Principal protection in flat or declining markets
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Upside potential in rising markets
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Tax-deferred growth, which can be a significant advantage for long-term planning
As one financial advisor recently noted, “Clients love the idea that they can make money if the market goes up, but not lose a dime if it goes down. That’s a powerful message in today’s environment.”
How Indexed Annuities Work
Suppose you invest $100,000 into a fixed indexed annuity with a 6% cap and a 0% floor. If the S&P 500 rises by 10% in a year, your return is capped at 6%. If the market drops 15%, your account earns nothing—but you don’t lose principal.
Some FIAs now use crediting strategies tied to more complex indices (such as volatility-controlled or global baskets) and offer higher caps or participation rates, depending on how long you commit your money and whether you add riders for income or enhanced benefits.
What About Liquidity and Fees?
Annuities are not savings accounts. Most contracts include surrender periods of 5–10 years, during which early withdrawals may incur penalties. However, many annuities allow penalty-free access to 5–10% of the account value annually.
Some contracts include optional income or death benefit riders, which add value but also come with additional fees—often 0.75% to 1.5% annually.
Always ask about:
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Surrender charges
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Annual fees
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Guaranteed vs. non-guaranteed benefits
Are Annuities Right for You?
Annuities can be a smart addition to a diversified retirement strategy—but they’re not for everyone. Investors with short time horizons, a need for full liquidity, or high risk tolerance may find better opportunities elsewhere.
However, for those seeking:
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Income stability
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Market-linked growth with downside protection
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Tax deferral
…annuities can be a compelling solution, especially when traditional 60/40 portfolios feel fragile.
Final Thought: Know What You’re Buying
Annuities can be complex, and the industry isn’t always known for transparency. Before buying, work with a fiduciary financial advisor who can compare products across multiple carriers and explain the trade-offs clearly.
In today’s volatile world, peace of mind can be priceless. And for many investors, annuities are delivering just that.
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