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People saving for retirement have a common goal: Build an adequate nest egg to prevent running out of money in old age.
One way for retirees to do that is via a guaranteed stream of income they can’t outlive — one that’s deposited into their bank accounts every month for the rest of their lives, like a paycheck.
At a time when workplace pension plans have largely disappeared, annuities can serve as an alternative for retirees seeking pension-like income, according to financial planners.
However, the types of annuities generally best-suited for the job — deferred income annuities, or DIAs, and single premium immediate annuities, or SPIAs — aren’t the ones that consumers often buy, financial planners said.
The reason largely comes down to consumer behavior, said Scott Witt, an actuary and fee-only insurance advisor based in New Berlin, Wisconsin.
“Americans have a hard time embracing annuities as a form of [longevity] insurance, and they keep thinking about it as an investment,” Witt said.
Annuity sales climb amid ‘peak 65’
Lee Baker, a certified financial planner and the founder of Claris Financial Advisors in Atlanta, said he expects “angst” around the Iran war and stock market volatility to drive annuity sales higher.
“Whether we like it or not, some of the growth in annuities overall is absolutely because of the uncertainty that a lot of people are feeling right now,” said Baker, who is a member of CNBC’s Financial Advisor Council.
What are SPIAs and DIAs?
Single premium immediate annuities and deferred income annuities share the same basic premise: A buyer hands over a lump sum of money, perhaps hundreds of thousands of dollars, to an insurer, which then guarantees a regular payout for life.
With an SPIA, the payout starts right away. Those who choose a DIA will start receiving the income down the road at a predetermined age, perhaps at 70 or 75 years old.
They are generally the “easiest” and “cheapest” annuities, and offer the “most bang for your buck” — meaning, they generally have higher monthly payouts — relative to other kinds like variable annuities and indexed annuities, Baker said.
“For your average consumer concerned about the possibility of outliving their income, an SPIA or DIA makes all the sense in the world,” Baker said. “They provide some certainty at low cost, and certainly increase the floor to your lifestyle [in retirement].”
However, they are among the least popular types of annuities.
Why variable, indexed annuities are more popular
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Consumers bought about $5 billion of DIAs and $14 billion of SPIAs in 2025, according to Limra.
Meanwhile, consumers purchased $63 billion worth of variable annuities last year and a record $128 billion of indexed annuities, Limra reported.
Variable annuities and indexed annuities are more like investment accounts. The former are more stock-like, and the latter are more bond-like, with returns capped to the downside but also to the upside, financial planners said.
However, consumers often buy these annuities with optional insurance riders that give consumers the choice of receiving lifetime income later, said financial planners. They generally come with higher costs and are more complex, they said.
But flexibility is often a key selling point: These annuities generally allow consumers some access to their money after they hand it over to the insurance company, albeit with restrictions that carry fees and penalties for the unwary, planners said.
“The fees are enormous,” and running afoul of the fine print can be “quite punitive,” Witt said.
However, by comparison, SPIAs and DIAs generally don’t allow that financial access once consumers pay a lump sum to the insurer, planners said.
Americans have a hard time embracing annuities as a form of [longevity] insurance, and they keep thinking about it as an investment.
Scott Witt
actuary and fee-only insurance advisor
“Most people aren’t incredibly comfortable buying these products that are irrevocable in nature,” said David Blanchett, CFP, the head of retirement planning at Prudential Financial, an insurer.
Similarly, the possibility of handing over a large sum of money to an insurer and then dying soon afterward with little to show for it is often a large behavioral hurdle for people, said Zach Teutsch, founder of Values Added Financial in Washington.
“When you’re dealing with annuitization decisions, depending on the structure of [the annuity], saying, ‘I’ll give you my life savings, and if I die tomorrow you’ll come out way ahead’ is just a horrifying prospect for most people,” said Teutsch, a member of CNBC’s Financial Advisor Council.
How to think about annuities
However, this isn’t a good way to think about the choice to buy a SPIA or DIA, Witt said.
Instead, consumers should frame the choice more in an insurance mindset: “You didn’t die broke,” Witt said.
“For whatever time you were alive, you had peace of mind that you wouldn’t outlive your money,” he said.
While it’s “hard to beat” the longevity protection offered by SPIAs and DIAs, they’re not always assured to offer the best payouts, Witt said. Certain income riders on indexed annuities or variable annuities may offer a better payout in certain cases, he said.
There may also be other use cases, experts said.
For example, certain consumers who are worried about the risk of needing long-term care — and who want to bypass the expense of traditional long-term care insurance or the need for medical underwriting — can buy certain income riders that offer a long-term-care-like benefit, Baker said. In this case, the annuity might pay out a larger monthly sum if the need for long-term arises, he said.
“I do understand there are additional complexities to some of the products that have lifetime income benefits,” Blanchett said. “But we can’t pretend that complexity should always be a barrier to doing something.”
When it comes to lifetime income, Blanchett said that everyone should — at an “absolute minimum” — aim to cover their basic living expenses with a stream of income they can’t outlive. Don’t forget to account for inflation.
The first step is to consider delaying claiming Social Security, he said.
Individuals who delay claiming Social Security past full retirement age stand to increase their benefits by 8% per year up to age 70. They lock in that higher sum for the rest of their lives.
“But if you’re like, ‘What’s the next thing to do that’s easy?’ It’s buy a SPIA or a DIA,” said Blanchett.
