Annuities had one of their best sales years on record in 2024, totaling $434.1 billion, according to LIMRA, an insurance industry trade group. But despite surging sales, many financial advisors are still hesitant to recommend annuities.
A study from the Center for Retirement Research at Boston College found that even though most financial professionals understand the risk of outliving one’s savings, they rarely suggest annuities as the solution. In some cases, advisors may bring up the option — but many clients dismiss it, according to the survey.
The result? So while annuities offer one of the only ways to guarantee lifetime income, they also come with baggage that can turn off both professionals and consumers.
Why many financial advisors aren’t recommending annuities
Annuities can offer real value for certain people. But there’s also a long list of reasons financial advisors avoid recommending them, especially when other investment vehicles are more transparent and flexible.
“The fees and complexity built into many annuities can make them difficult to evaluate, even for professionals,” says Craig Toberman, certified financial planner and partner at Toberman Becker Wealth.
Here are the four main reasons why some advisors aren’t recommending annuities.
1. Annuities are complicated
Annuities can be difficult to understand, even for well-informed investors. There are many types to choose from — fixed, variable, indexed, immediate, deferred — and each comes with its own structure, rules and fees. Annuity contracts can be dozens of pages long, and comparing options isn’t easy.
Optional features, known as riders, add even more complexity, as do surrender charges and insurer credit risk.
That’s a lot, especially if you’re trying to explain all the details to a client in a one-hour meeting.
The 2023 Boston College study found that even among relatively wealthy clients (those with over $100,000 in financial assets), more than one-third weren’t familiar with lifetime income products, and another 40 percent were only somewhat familiar. That leaves financial advisors with the burden of educating clients from scratch.
“If you can’t explain what you’re buying back to me in plain language, you probably shouldn’t sign the dotted line,” says Toberman.
2. Annuities can carry high fees
Historically, most annuities came with steep costs. Commissions, mortality and expense (M&E) fees, administrative costs and fees for optional riders can eat into a client’s returns quickly.
In particular, variable annuities are notorious for layers of fees that can add up to 3 percent or more annually, though the popularity of variable annuities has waned considerably over the past five years.
Meanwhile, many financial advisors today prioritize low-cost, transparent investment strategies. When a portfolio of index funds can be built at a fraction of the cost and still deliver strong results, it’s not always easy to justify recommending a more expensive and less flexible product.
“From my perspective, simpler, lower-cost solutions — such as adjusting withdrawal strategies and maintaining proper cash reserves — can often effectively address the same concerns of outliving income,” says Nate Baim, a certified financial planner and founding member of Pursuit Planning and Investments.
3. Annuities lock up your money
When you put money into an annuity — especially a deferred or fixed annuity — you’re agreeing to surrender access to those funds for a period of years. If you pull money out early, you may face surrender charges and tax penalties.
That lack of liquidity is by design. By locking up funds, insurers can pool risk across many policyholders and offer lifetime payouts.
But this lock-up period makes many clients nervous, and advisors know it. In a world where people want quick access to their assets, “locking in” part of a portfolio can feel like a straitjacket.
Baim points out that for an annuity to be a good fit for a client, the person should have enough liquid assets to cover at least two years of living expenses, “plus any foreseeable large purchases, and still have a reserve for unexpected needs.”
Financial planners also know that clients’ needs and circumstances can change quickly — and once you’re in an annuity contract, it’s not easy to get out.
4. Annuities have a bad reputation
Years of aggressive sales tactics — especially from insurance agents and brokers operating under commission-driven models — have left many people suspicious of the entire annuity industry, including financial advisors.
Combine that with horror stories about retirees buying expensive, inefficient annuity products they didn’t understand, and you get an industry image that’s hard to clean up.
“Broadly speaking, the industry still needs to do more to improve transparency, reduce costs and align product complexity with client understanding,” says Baim.
Advisors who want to maintain credibility and trust often steer clear to avoid the association with what some clients see as a scammy product.
The case for annuities: When they actually make sense
Despite the concerns, annuities can still play a valuable role in a retirement plan for the right client in the right situation — particularly those who are anxious about outliving their money.
“Annuities are designed to manage specific financial risks, such as longevity risk, downside risk and sequence of return risk,” says Baim.
For clients who lack a pension and want a steady paycheck in retirement, an annuity may be a good fit.
“I see increased calm during periods of market volatility from clients that have some type of annuity or guarantee in their portfolio,” says Joe Conroy, certified financial planner and owner of Harford Retirement Planners.
In short, annuities can fill a unique niche. Not every client needs one. But for a risk-averse retiree with a long life expectancy who has anxiety about running out of money, an annuity might be an attractive option.
Why annuities still belong in the tool kit
A well-structured annuity can offer the following benefits:
- Guaranteed lifetime income, no matter how long you live.
- Protection against market downturns, particularly with fixed and indexed annuities.
- Tax-deferred growth on earnings until withdrawals begin.
- Peace of mind for retirees who don’t want to manage investments in their 80s and 90s.
- Spousal benefits, when joint-life annuities are used.
But advisors are clear: Annuities should never be a stand-alone solution.
“It’s one piece of a larger, well-thought-out plan,” says Baim.
The Boston College study suggests that interest in annuities could grow if the process becomes simpler. Around half of respondents with over $100,000 in assets said they were open to buying a lifetime income product — but clarity and trust were key factors.
The annuity industry has been evolving. Fee-based annuities with no commissions and products with more flexibility — including contracts that allow 10 percent annual penalty-free withdrawals — are helping improve access. And more fiduciary advisors now have commission-free options at their disposal, allowing them to make recommendations without conflicts of interest.
Some advisors hate annuities. Others love them. Many, like Conroy, fall somewhere between.
I don’t like or dislike annuities any more than I like or dislike a screwdriver — they’re both just tools.
— Joe Conroy
Certified financial planner and owner of Harford Retirement Planners
Bottom line
Annuities remain a complex product. While some financial advisors are hesitant to recommend them, they can still offer meaningful benefits for certain clients. But not all annuities are created equal, and many experts agree that more transparent, simpler products are needed.
If you’re considering an annuity, it’s worth having an open conversation with your financial advisor. They can help you understand whether it fits your goals, how the product works and whether recent changes in the industry make it a suitable option for you.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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