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There are many factors helping to drive annuities’ growing popularity: Longer life expectancies, more expensive stock markets (which suggest lower forward-looking returns), higher interest rates (which help to improve the potential income from annuities), and more retirees that are not covered by a defined benefit plan or pension plan (according to the Center for Retirement Research at Boston College, fewer than 15% of non-union private sector workers are covered by such plans, versus 88% of private sector workers in 1975). 2
For those of us who only have Social Security as a source of guaranteed lifetime income in retirement, there is a lot of pressure to make our fixed pool of savings last. To manage the risk of outliving their wealth, many families are forced to curtail their spending or invest more conservatively. Based on CIO’s research, annuities can be a valuable tool to reduce retirement risks without needing to make such sacrifices.
Here are three ways annuities can enhance your retirement strategy as a complement to diversified investment portfolio:
Create a guaranteed income Floor:
Annuities can transform a portion of your savings into a steady stream of income, often guaranteed for life. This income floor helps cover essential expenses, providing peace of mind even when markets fluctuate. With a reliable payment in place, you can worry less about outliving your assets or being forced to reduce your standard of living during downturns.Increased risk-adjusted returns: Spend more or grow more:
By securing a baseline of guaranteed income, annuities may allow you to spend more confidently in retirement or allocate more of your remaining portfolio to growth-oriented investments. This increased efficiency means you can do more with less: either enjoy a higher standard of living or pursue greater long-term growth, knowing your core spending needs are protected.Mitigate Longevity and Market Risks:
Annuities are designed to address two of the biggest risks in retirement: living longer than expected and facing unpredictable markets. With features such as lifetime income and, in some cases, inflation protection or market participation, annuities can help ensure your retirement plan remains resilient no matter how long you live or how markets perform.
In summary, annuities offer a practical way to support a more confident and enjoyable retirement. They work best as part of a diversified retirement plan, complementing other sources of income like Social Security, pensions, and investment withdrawals. When evaluating annuities, consider factors such as fees, the financial strength of the provider, and the specific terms of the contract. To learn more, read the most recent CIO report, .
Watch this short video: ۶Ƶ Trending Extra: Can an annuity be right for me?
1 LIMRA. (2025, February 22). LIMRA: 2024 retail annuity sales grow 12% to a record $434.1 billion.
2 Munnell, Alicia H., Kelly Haverstick, and Mauricio Soto, 2007. “Why Have Defined Benefit Plans Survived in the Public Sector?” Issue in Brief 2. Chestnut Hill, MA: Center for Retirement Research at Boston College.
