As interest rates increased in recent years, annuities have also gained favor among advisors and investors. Higher yields, market uncertainty and product innovation have increased the attractiveness of these instruments for advisors and their clients.
We spoke with Steve Goldberg, Assistant Vice President, Annuity Product Management at Pacific Life, who said the appeal of annuities goes beyond demand for guaranteed lifetime income. Increasingly, advisors and investors are considering annuities to provide growth potential while protecting against downturns, which reduces some of the volatility traditionally handled by the fixed income portion of a portfolio.
The shift in recent years comes as strong equity growth has met client concern about recession and underperformance of fixed income, according to Goldberg. That combination has complicated the traditional role of bonds as the more stable component of client portfolios, with some advisors replacing part of the bond allocations with annuities.
A sharp increase in industry sales reflects this change. Retail annuity sales rose from $254.6 billion in 2021 to a record $464.1 billion in 2025, according to LIMRA. Goldberg attributed much of this growth to higher interest rates, which have allowed insurers to offer more attractive rates, upside potential and protection features for annuities.
“My take is that the demographics have always been there,” Goldberg said.
Millions of Americans are entering retirement each year, creating a large potential market of retirees and pre‑retirees, who are the primary users of annuities. But Goldberg said low rates weakened the value proposition of annuities for years. Increased rates allowed insurers to offer more benefits to attract investors.
A Wider Range Of Protection And Growth
Goldberg divided the annuity market into four broad categories that offer different combinations of return potential and protection.
Traditional fixed‑rate deferred annuities provide a stated interest rate which makes them the most conservative of the four. Fixed index annuities tie interest to the performance of an index and provide protection against losses when that index declines over an applicable term.
Much of the industry’s more recent innovation has occurred in registered index‑linked annuities, or RILAs. These products can provide greater upside potential than fixed index annuities in exchange for accepting some market risk.
Rather than eliminating losses altogether, Goldberg explained that RILAs may use buffers designed to absorb an initial portion of an index’s decline. A contract with a 20% buffer, for example, could absorb the first 20 percentage points of a market loss over the specified term, leaving the investor exposed to losses beyond that level.
Variable annuities, with the least protection, occupy the higher‑risk end of the spectrum. Goldberg said they remain part of the market but have lost share since the Global Financial Crisis, when their greater exposure to market losses contributed to declining popularity. Additionally, lower interest rates increased hedging expenses for insurers, making them less attractive as an offering.
Fees also matter. Goldberg said many fixed and registered index‑linked products have little or no ongoing explicit management fee, while variable annuities do. He cautioned that investors can still incur other fees including charges for optional riders, underlying exchange‑traded fund fees or early withdrawal charges.
Goldberg summarized that the combination of growth potential, downside protection and limited fees has helped drive interest in annuities.
Goldberg summarized that the combination of growth potential, downside protection and limited fees has helped drive interest in annuities.
Demand Moves Up The Wealth Spectrum
The increase in annuity demand is not occurring evenly across households.
Asked about the implications of a “K‑shaped” economy, Goldberg pointed to a basic limitation: Investors need sufficient liquid assets before committing money to an annuity makes sense, and broker‑dealers commonly restrict how much of a client’s liquid net worth can be allocated to the products. That leaves financially pressured households on the lower side of the “K” with relatively little access to annuities.
Among wealthier households, however, Goldberg said Pacific Life has seen annuities move further up the wealth spectrum. Where the products were associated primarily with households holding roughly $500,000 to $2 million, he said investors with net worths of $5 to $15 million are increasingly considering them as a way to protect a portion of accumulated wealth.
For these households, annuities form a specific part of a larger portfolio where preserving assets or limiting volatility matters more than maximizing upside.
Advisors Reconsider The Fixed Income Sleeve
That changing use case is also affecting advisor attitudes.
Goldberg said more advisors are willing to consider annuities for part of an allocation that historically would have gone to bonds because many annuities don’t have interest‑rate risk and can provide expected returns in a way less volatile than the performance of fixed income.
A traditional 60/40 has generally used the fixed income allocation in part to dampen overall volatility, he said. But rising rates can cause bond prices to fall, exposing investors to losses in the portion of the portfolio they may have expected to provide stability.
Goldberg said that experience has made advisors more receptive to annuities offering defined levels of protection and expected return potential.
“I think more advisors are much more open to looking at annuities to replace a portion of the fixed income sleeve of someone’s portfolio,” he said.
Goldberg estimated that roughly 70% of today’s annuity sales are for protected growth, compared with about 30% for income.
Goldberg estimated that roughly 70% of today’s annuity sales are for protected growth, compared with about 30% for income. While annuities have traditionally been associated with guaranteed lifetime income alongside Social Security and pensions, he said their role has shifted over the past five to 10 years.
“More and more annuities are being sold for protected growth purposes versus lifetime income purposes,” Goldberg said.
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at julius.buchanan@wealthsolutionsreport.com.
