Annuities are having a moment, to the tune of $105 billion in sales for the first quarter of 2025. It’s the sixth consecutive quarter in which sales topped $100 billion.
This record-setting growth in annuities comes during a three-month period that is typically slow for the annuity industry. While January saw sales dip at a rate not seen in a couple of years, sales picked up in February and March. The increase in sales has been driven by fear and uncertainty about the economy and interest rates that are still favorable for this type of product, says Keith Golembiewski, director of annuity research at LIMRA, the trade association for annuities.
“In mid-February and March, we really saw significant sales growth with a lot of the focus on a flight to safety,” says Golembiewski, noting investors were also reacting to the potential for the Federal Reserve to cut rates later in 2025. By purchasing a fixed-rate annuity, investors can lock in rates before they potentially decline.
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Unlike growth stocks, annuities tend to perform better when interest rates rise. Just like CDs and money market accounts, the higher the rates are, the better the payout you’ll receive.
With interest rates on fixed annuities around 6%, the environment for the product is still favorable. That may change later in the year. The Federal Reserve has signaled it could cut interest rates, with the market anticipating two reductions this year. If President Donald Trump has his way, interest rates will fall further, which would be bad news for annuity investors.
“Lower rates mean lower returns on annuities,” says Michael Santiago, senior financial editor for Annuity.org. “Locking in a fixed rate now is part of what’s drawing attention to annuities. It allows investors to secure returns before potential rate cuts.”
Fixed-rate annuities are driving the growth
During the first quarter, LIMRA reported total fixed-rate deferred annuity sales were $39.5 billion. While that is down 8% year-over-year, fixed-rate deferred annuities were the main driver of annuity sales growth, accounting for close to 38% of the total annuity market during the first three months of the year.
Sales of fixed-rate deferred annuities jumped in March among investors looking to avoid volatility in the market and get a better return than with a CD.
With a fixed-rate deferred annuity, you can save money and grow it at a fixed interest rate over time before you start receiving payouts.
Investors are looking for a safe-haven
Another reason why older investors and retirees have been turning to annuities is market volatility brought on partly by the Trump administration's tariff policies.
Only a few weeks ago, the markets fell over a thousand points in a day over concerns about global trade wars; stocks then gained more than 3,000 points on another day when those concerns appeared to dissipate.
With tariffs on, off, back on and off again, and with talk of a recession, stagflation or none of the above, it is creating uncertainty and volatility. Investors seeking downside protection will turn to safer products like CDs and annuities to cushion any potential blow.
“There are a lot of unknowns," says Golembiewski. "What’s happening in the job market? Is inflation going up or down? How are the S&P 500 and the Dow Jones performing? There’s a lot of movement, a lot of volatility. A flight to safety gives clients peace of mind.”
That’s where a product like a Multi-Year Guaranteed Annuity (MYGA) comes in. It is similar to a CD but has a higher payout and can be held for longer than a CD. With MYGAs, you get a guaranteed fixed interest rate for the entire term of the annuity, which is typically up to ten years, earnings grow tax-deferred, and your initial investment is protected from any downside. Some MYGAs allow you to withdraw money penalty-free.
“It gives you downside protection,” says Michael Downing, Chief Operating Officer of Athene, the annuity provider. “You never lose your initial investment. Typically, you are getting a lot more than CD, upward of 200 basis points.”
What are the risks of owning annuities?
While the environment for annuities is still favorable, that may not always be the case. Sure, annuities can act as a haven during troubled economic times, but if the volatility gets too extreme, annuities tend to perform poorly, as do other areas of the markets.
After all, if the economy fell into a recession, investors would be more focused on saving money than purchasing an annuity, says Golembiewski.
“Extreme volatility would indicate some recession concerns that would have an impact on the annuity market,” he said.
The same goes for drastic cuts in interest rates. If the Fed surprised the markets and cut rates by more than anticipated, that could hurt sales of annuities.
Don’t act because of what ifs
At the end of the day, purchasing an annuity shouldn’t be driven by fear that rates will get cut or that the economy will fall into a recession.
Purchasing an annuity should be driven by the desire for guaranteed income in retirement, or by a belief that it represents a conservative way to get a better return than from a CD.
“Investors should consider how it fits into their long-term plan and determine if it’s a suitable fit for them,” says Santiago. “Additionally, speaking to a fiduciary advisor can alleviate the stress that often comes with financial decision making.”
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