The Annuity Gap: Why Retirees Are Leaving Millions on the Table

The U.S. retirement landscape is undergoing a quiet crisis: despite record demand for guaranteed income, income annuities—a product designed to address this need—are underutilized by millions of retirees. With an aging population and volatile markets fueling demand, the gap between potential and actual adoption represents a significant missed opportunity for financial security. Let's explore why this gap exists, its consequences, and how investors can leverage it.

The Underutilization Paradox

Despite a 13% surge in income annuity sales to $434.1 billion in 2024, these products remain a niche tool in retirement planning. LIMRA data reveals that over half of pre-retirees lack sufficient guaranteed income, yet only 10–15% of eligible retirees adopt income annuities. This disconnect persists even as demographic trends accelerate: 7.5 million more Americans will be 65+ by 2027, with 4 million hitting retirement age annually until 2029.

Why the Underutilization?

1. Complexity and Misunderstanding: Annuities are often perceived as opaque due to their multi-decade payout structures, surrender charges, and riders. A 2023 survey by the Insured Retirement Institute found that 62% of retirees avoid annuities due to confusion over terms.
2. Liquidity Concerns: Fear of losing access to capital deters investors, despite the fact that modern products like indexed annuities often include liquidity solutions such as income riders or partial withdrawals.
3. Market Volatility Overconfidence: Many retirees overestimate their ability to navigate stock market swings, ignoring the risk of outliving savings.

The Favorable Conditions Ignored

The current environment is uniquely favorable for income annuities:
- Demographics: The “Peak 65 Zone” (2023–2027) sees the largest cohort of retirees in history entering retirement.
- Interest Rates: While falling rates have reduced payouts slightly, carriers like MassMutual and Athene are innovating with inflation-indexed riders and flexible payout options to maintain appeal.
- Market Volatility: The S&P 500's 19.4% decline in 2022 and geopolitical-driven selloffs in 2025 have heightened demand for principal-protected income.

The Missed Opportunity Costs

Underutilization means retirees are leaving billions in guaranteed income on the table. For example:
- A 65-year-old with $500,000 in savings could secure a lifetime income of $25,000–$35,000 annually via a fixed annuity today, depending on rates.
- Indexed annuities offer upside potential tied to equity markets (e.g., S&P 500 gains) while shielding principal—a critical feature in a 748-point DJIA selloff year like 2025.

Closing the Gap: Investment Strategies

1. Diversify with Annuities: Allocate 20–30% of retirement assets to income annuities to cover essential expenses, ensuring market downturns don't erode principal.
2. Leverage Indexed Products: Opt for RILAs or FIAs with income riders (e.g., Nationwide's L.inc Rider) to balance growth and stability.
3. Seek Advisor Guidance: Work with fee-based RIAs who can navigate annuity complexity. Top providers like Corebridge and Allianz now offer transparent fee structures to appeal to this demographic.

Risks and Considerations

• Interest Rate Cycles: Falling rates reduce payouts, so timing matters. Lock in favorable rates when available.
• Carrier Financial Strength: Stick to insurers with A+ ratings (e.g., MassMutual, New York Life) to minimize counterparty risk.

Conclusion: Secure Your Future, or Leave It to Chance

Income annuities are not a one-size-fits-all solution, but their role in bridging retirement income gaps is undeniable. With 73 million baby boomers now 65+, the stakes are high: underutilization risks leaving retirees exposed to longevity, inflation, and market risks. Investors who act now—by diversifying with annuities, partnering with advisors, and prioritizing stability—can turn the gap into an advantage. The question remains: Will you seize the opportunity, or let it slip into retirement regret?

Data sources: LIMRA, U.S. Census Bureau, Federal Reserve, company filings.