Investors are turning to annuities at an unprecedented pace as a record number of Americans turn 65 and face the most dreaded of all retirement risks: running out of money.
As a peak 4.2 million Americans reached retirement age in 2025 and the massive demographic wave continues, annuity sales surged to a high of $464 billion last year and exceeded $100 billion in this year's first quarter, tracking for another strong year, according to Limra, an insurance industry group.
Income-paying annuities that are designed to supplement Social Security payments and compensate for the absence of traditional pensions are selling briskly. The lure is clear: These annuities are guaranteeing the highest levels of income in more than a decade.
The current top three annual income guarantees for a person investing $200,000 at age 60 and turning on the income stream at age 70 average $33,702, offered on fixed-indexed annuities by Midland National, Fidelity and Guaranty Insurance, and Corebridge Financial. That is 6% higher than last year's top-three average of $31,824, and 51% higher than the average $22,330 in 2022.
But rising demand for annuities is fueling calls for caution by advisors, because investors are prone to making big blunders in selecting and using annuities, thereby undermining the potential benefits.
"Annuities can be the best investment you make if you use them the right way, or the worst if you use them the wrong way," says Curt Scott, president of Scott Financial Group in Grove City, Ohio.
Annuities are insurance contracts typically designed for two different objectives: to help retirement savers invest with protection against losses, or to turn assets into pension-like income that lasts a lifetime. But there are thousands of variations, making for a confusing marketplace.
To give a good sense of the market, Barron's has compiled a list of the 100 most competitive contracts across categories for an investor with a $200,000 investment. Using a database built by Cannex, a private company that tracks pricing on retirement products, we screened for solid companies with an AM Best financial strength rating of A- or better to find the contracts with the highest rates and payouts.
As you pore over the annuity market, it may help to get acquainted with what advisors say are investors' biggest annuity blunders. If you avoid them, you can wring out the best from these insurance-sold contracts.
Tunnel Vision
Too many investors focus solely on a single type of annuity, or annuities from a single insurance company. A narrow focus could mean missing out on competitive deals.
If you are looking at variable annuities, in which you invest in mutual fund--like accounts, the best income guarantee Barron's could find for a 60-year-old person investing $200,000 and planning to turn on income at age 70 is $27,202 a year. The best for registered index-linked annuities, or RILAs, which tie your upside to a stock index with downside protection, is $19,500.
But if you pull back the lens on the annuity universe, you will find fixed-indexed annuities, or FIAs, paying significantly more. The top payout is $35,406, offered by Midland National's Summit Edge 5 with the Income Strategy-Level LPA rider. That is 30% more than the best variable annuity and 82% more than the top RILA. The trade-off? Though income in all three annuity types can go up if investments do very well, FIAs don't have as much upside potential, so an income bump is less likely.
It can be similarly unfruitful to only consider annuities from one company.
"The gap between the best and worst annuity products is significant," says Howard Sharfman, senior managing director of NFP Insurance Solutions. A variable annuity, for instance, might bear contract fees of 0.2% at one company and 2% or more at another.
Some insurance agents only work for a single insurer. Make sure the person you are working with -- whether an insurance agent, broker, or financial advisor -- works with multiple insurance companies and different types of annuities.
You may even want to meet with more than one agent, broker, or advisor to hear their recommendations, says Stephen Kates, founder of Clocktower Financial Consulting. "This isn't a decision you want to take lightly. Like getting a mortgage, if you take the first quote, you can't be confident it's the best rate."
Make sure your financial pro works with companies that are highly rated for financial security, especially for long-term contracts with guaranteed income. "You're going to marry that carrier for life, so they better be solid," says Stan Haithcock, owner of the Annuity Man, an annuity brokerage focusing on insurers with an AM Best rating of A+.
Another early-stage mistake isn't defining precisely what you want to get out of an annuity. Annuities come with growing number of alluring features or mechanics to make them more attractive to investors, such as the option to activate long-term-care benefits, to lock in a high death benefit for heirs, or to front-load or backload income.
"But nothing is free," Haithcock says. Features will cost you either in the form of a fee or in giving up some upside or income, so don't lose sight of your specific annuity goals as you are presented with options by a financial pro.
Costly Complacency
Every annuity has a trade-off. Don't invest in one until you discover what it is.
Consider that many popular RILAs and FIAs, which can accumulate savings with downside protection and caps on a stock index's performance, will guarantee caps for the first year only, but have surrender periods lasting five to 10 years. Investors may find their caps reset lower, while facing a surrender charge if they want out of the contract.
Advisors say this can lead to buyer's remorse. To sidestep this risk, look for contracts with no surrender charge -- typically sold through a fee-only advisor -- or find ones whose rate guarantee period matches the surrender period.
Some insurers are addressing this risk with new product design. Pacific Life recently introduced an annual cap that is locked for six years on its Protective Growth RILA, which has a six-year surrender charge. As always, annuity benefits come with trade-offs -- with a 10% buffer, investors will get a 14% cap on the S&P 500 index in this product configuration, rather than a 16.5% cap if they choose the RILA with a rate that resets annually.
Even after you own an annuity, complacency can take a toll.
Most annuities are sold with surrender periods, typically five to 10 years, during which you must pay a penalty if you take more than 10% of your money out. But even once a surrender period ends, most investors stay put, according to studies by consulting firms Oliver Wyman and Milliman.
There can be big benefits to shopping for better deals after a surrender period -- especially in recent years, as higher interest rates enable insurers to offer more attractive terms. "Some people bought products prior to 2022 that were not nearly as attractive as they are today," says Sheryl Moore, CEO of Moore Market Intelligence.
Be cautious, however. Rolling over into new annuities is an area of heightened scrutiny by the Financial Industry Regulatory Authority due to past cases of agents, motivated by commissions, aggressively pushing rollovers that weren't in the best interest of investors.
"There are advantages in newer products, but investors have to understand whether the bells and whistles of the new annuity are appropriate for them, and what the costs are," says Brian Rubin, co-head of Eversheds Sutherland's securities enforcement practice.
Forgone Income
About one-third of annuities are sold for their income benefits, according to Moore Market Intelligence, and most are FIAs or variable annuities with income riders that typically cost an annual 1% to 1.5%.
But 50% to 70% of annuity owners with income riders don't turn on income, according to studies by the Society of Actuaries and Limra.
"If you don't need income, why are you adding an income rider?" says Keith Golembiewski, director of annuity research at Limra. Remember to avoid paying for features you don't need; if you find you don't need the income, you can cancel the rider.
Another mistake: turning income on too late in retirement to get the most benefit.
Annuities begin to pay off after you have collected more in income than you invested. The earlier you begin taking income, the sooner you will exceed your investment and put the insurer on the hook to continue paying you out of its coffers, says Wade Pfau, founder of Retirement Researcher, an educational website.
Insurers create incentives for investors to delay income with higher guarantees for longer deferrals, but generally the best time to turn on income is when you retire, Pfau says.
Aligning your income start date with your retirement date can protect you from having to draw money from your investment portfolio during a market dip -- a dreaded scenario for retirees because it depletes savings more quickly, says Dan Simon, an advisor at Daniel A. White & Associates. "We find that guaranteed lifetime income frees people to invest more aggressively in stocks, and they aren't panicking when the market drops because they know their income is taken care of."
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July 24, 2026 01:00 ET (05:00 GMT)
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