Annuities Have an Awareness Problem: Why That Matters
The shift away from pensions means millions of Americans won't be financially secure in retirement. Annuities could help, but many don't know what they can do.

In the 1934 comedy classic It’s a Gift, W.C. Fields’ character encounters an aggressive, slick-talking annuities salesman in an indelible scene that helped shape a negative perception of the product. Despite decades of product innovation and the adoption of industry-wide operating principles benefiting consumers, some would have you believe that selling annuities has changed little in the intervening decades.
The reality is that annuities are manifestly popular with U.S. consumers, at least among those who know enough about them to have an opinion. According to the 2021 Protected Retirement Income and Planning (PRIP) Study, three times as many consumers have a favorable perception of annuities (33%) as those who have a negative perception of them (11%).
However, most consumers (56%) are either neutral or uncertain in their perceptions of the product. The framing also matters. Our research finds that 48% of defined-contribution plan participants would prefer annuitization when the choice is framed as income rather than as an investment.
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So, annuities have an awareness problem, not a perception problem.
What consumers like about annuities
Despite the awareness gap, many consumers value the discrete benefits of annuities, according to the 2021 PRIP Study. A guaranteed income stream in retirement (33%) and the protection of a portfolio’s assets (25%) are particularly favored, followed by guarding against declines in the stock market (23%) and the ability to protect an initial investment (23%).
In addition, nearly eight out of 10 consumers are interested in annuities as part of an employer-sponsored retirement savings plan. When asked if they would recommend the product to a family member or friend — a universal benchmark for customer satisfaction — eight out of 10 annuity owners said they would do so.
Perhaps the greatest affirmation of the popularity of annuities is their ever-increasing sales. Following record-high totals in 2022, total first quarter annuity sales were $92.9 billion, a 47% increase from the prior year. This represents the highest quarterly sales ever recorded, according to LIMRA’s U.S. Individual Annuity Sales Survey. The organization expects total annuity sales in 2023 to exceed $300 billion for the second consecutive year.
Still, the awareness gap with annuities is a problem that needs to be solved sooner rather than later. 2024 will mark the greatest surge of new retirees in the nation’s history. The Peak 65 generation is testing a retirement system described by Bloomberg and Barron’s editors as a crisis burdening the country’s social safety net.
Indeed, 40% of U.S. households risk running short of money in retirement, according to a 2019 study by the Employee Benefit Research Institute. When looked at on an individual basis, the average retirement savings shortfall for those ages 60 to 64 ranges from $12,640 per individual for widowers to $15,782 for widows. It increases to $24,905 for single men and $62,127 for single women.
A need for protected income in retirement
When the Peak 65 generation entered the labor market in 1980, 60% of private-sector workers relied on the protected income provided by a pension plan as their only retirement account, as compared to 4% in 2020. Today, only 20% of all civilian workers participate in a defined-benefit pension, with a large portion of those workers employed in federal, state and local governments.
The shift away from defined-benefit plans to 401(k)s and other defined contribution plans means that millions of Americans lack sufficient protected income required for a financially secure retirement, especially since Social Security was designed to replace about 40% of income in retirement for the average worker.
Therefore, reconciling the awareness gap regarding annuities — even for consumers for whom the products don’t make sense — will increase awareness of the need for protected income in retirement. Consumers interested in learning more about annuities should consult with a financial professional, of course, but not before taking some basic steps.
To begin, consumers should evaluate their investment goals and the extent to which protected income is a need. If an annuity helps them do things that other investments cannot, they should acquaint themselves with the various types of annuities that exist, along with the guarantees they provide.
What else to consider about annuities
To narrow the field of potential investments, consumers should then consider the specific benefits of an annuity, including the ability to grow or protect their assets. They also should understand the costs and potential risks, as well as the duration of their investment and the strength of the insurance company.
Finally, consumers should discern how and when they can realize the income generated by an annuity, along with what happens if they need to withdraw some or all of their money earlier than expected. It’s also important to understand how annuity income and withdrawals are taxed.
The Alliance for Lifetime Income has created an array of educational resources, including a worksheet consumers can use to determine if an annuity is right for them. The more Americans understand the need for protected income in retirement, the greater their ability to retire with a more secure economic future, one with less risk and higher levels of confidence.
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Jason J. Fichtner, PhD, is a Senior Fellow and Head of the Retirement Income Institute, a scholarly research and thought-leadership program of the Alliance for Lifetime Income (ALI), where he manages the research, strategy and operations of the Institute. He is widely recognized as a leading researcher and expert on Social Security, federal tax and budget policy, and retirement security.
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