Even without being a Financial Advisor, most people are familiar with terms like bonds versus stocks or mutual funds versus commodities. But when it comes to annuities, confusion still reigns. A recent wave of studies reveals that many Americans—even those approaching retirement age—still don’t grasp the basics of these important financial tools.
A new 2025 study from the American College of Financial Services finds the knowledge gap remains stubbornly wide. On a quiz measuring annuities literacy, older Americans averaged just 14 percent—a modest gain from previous years, but still the lowest score among all retirement topics. In fact, more people understood complex issues like Medicare, life insurance, and long-term care than could explain what an annuity actually does.
It’s no wonder many shy away from annuities when making retirement decisions. As analysts point out, complex products rarely win buyers’ hearts—or wallets—unless people understand them.

GETTING TO KNOW ANNUITIES

Annuities 101: At its core, an annuity is a “series of fixed or variable payments made at regular intervals over multiple years.” You can buy an annuity yourself, or access one through your employer. Amazingly, many people already have annuities—often without realizing it:
  • A pension is essentially an annuity your employer pays to you after retirement.
  • Social Security is a government-backed annuity that guarantees monthly income.
Commercial annuities are less common—just about 11 percent of Americans own them as of 2025, according to LIMRA’s 2025 Retirement Investor Survey. Owners tend to be upper middle class, with higher retirement savings, and often live longer than the broader population.
Despite their benefits, the majority of retirees do not factor annuities into their plans. Many depend on an average Social Security benefit of roughly $2,050/month (as of 2025), plus savings and any pension, even though typical retiree spending exceeds $4,400 per month.

BENEFITS OF ANNUITIES

Every financial solution comes with pros and cons, and annuities are no different. Unfortunately, the positives often get lost in technical jargon or sales hype. Here’s how annuities could strengthen your retirement plan:
  • Diversification: Annuities are insurance contracts, not traditional investments, so they can add a layer of security and help protect against market downturns.
  • No Contribution Limits: You can save more in an annuity than you can in a 401(k) or IRA once those accounts are maxed out.
  • Tax Deferral: With deferred annuities, you don’t owe taxes until you make withdrawals—including on any interest or earnings.
  • Streamlined Inheritance: Many annuities with death benefit riders can be passed to beneficiaries without going through probate, easing the administrative burden and possible costs.
In 2024, annuity sales topped $434 billion—a 13% increase—and now, with persistent market uncertainty and a growing need for guaranteed income, in-plan annuities (available within 401(k)s) are gaining traction for workers who lack pensions.[^1]
It’s important to ask: No financial product delivers the perfect trifecta of safety, liquidity, and high returns. Annuities, however, remain an important tool for securing guaranteed income with modest growth, particularly as new products offer more flexible features.
Bottom line: Consider if an annuity could make sense in your retirement portfolio. With longer lifespans and less predictable markets, the “security” annuities offer is more valuable than ever.

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& Myths about Fixed Annuities Addressing 10 Perceptions (or Misperceptions) about Annuities

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This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation.