Annuity sales are booming — but not the ones best for lifetime income

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.

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.

“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.

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.