Annuities Purchase Process: Key Buyer Insights

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Author

Matthew Drinkwater, Ph.D., FSRI, FLMI, AFSI, PCS
Corporate Vice President, Annuity and Retirement Income Research
LIMRA and LOMA

March 2025

Retirement investors — workers and retirees aged 40 to 85 with at least $100,000 in household investable assets — are often prime candidates for individual annuities. Many not only need the protections annuities offer, but they also have the means to purchase them. Past LIMRA research has compared annuity owners with nonowners, finding that owners are more likely to have completed key retirement planning activities, feel they have enough lifetime-guaranteed income to cover their basic living expenses in retirement, and express more confidence in their ability to live their desired retirement lifestyles.

While sales of annuities have surged over the past several years, rising from about $250 billion in 2021 to an estimated $430 billion in 2024, the industry has likewise experienced regulatory changes, such as the SEC’s Regulation Best Interest, the NAIC’s Suitability in Annuity Transactions Model Regulation (#275), and the Department of Labor’s (DOL’s) Retirement Security Rule.

These regulations are designed to ensure that annuity transactions are not only suitable for customers, but also in their best financial interests, regardless of the salesperson’s interests. Although some of these regulations have not been fully implemented, insurers and their distribution partners continue to adjust their sales practices in response. This evolution may have impacted the buying process as experienced by customers, as well as how clients view the financial professionals (FPs) who are offering annuities to them.

This article, based on LIMRA’s 2024 Retirement Investors Survey findings, focuses on the subset of owners who purchased their annuities recently and examines their evaluation of the buying process and the role played by their FPs.

Twenty-two percent of surveyed retirement investors own deferred and/or immediate annuities, and about one-quarter (27 percent) bought their most recent contracts within the past three years (i.e., between mid-year 2021 and mid-year 2024). Compared with all owners, recent buyers are usually younger and have higher household incomes, but are otherwise very similar across characteristics like wealth, use of FPs or educational attainment. These investors were asked for additional information regarding this purchase.

Source of Funds

The most common source of funds used to buy the annuity, cited by 4 in 10 buyers, was an IRA rollover from a DC plan. This finding is consistent with industry data indicating IRAs represent the largest source of funds in the individual annuity industry. In 2023, 54 percent of retail annuity sales were associated with IRAs — though some of these may be associated with IRA-to-IRA transfers instead of rollovers. The importance of rollovers underscores the potential impact of the DOL’s Retirement Security Rule. If the Rule, or a similar version of it, were to be implemented, advice regarding workplace retirement savings accounts, including rollovers into annuities, has the potential of putting FPs under a fiduciary standard of care. That classification implies that FPs must meet certain obligations regarding conflicts of interest that may be difficult to achieve under traditional commission-based models.

Role of Financial Professionals

Among the 73 percent of buyers whose households typically work with an FP — such as a financial advisor/planner, investment broker, banker or insurance agent — 86 percent said that this person helped them to select and purchase their annuities; another 10 percent worked with a different FP. Even investors who do not work with FPs on a regular basis probably interacted with FPs during the buying process. Access to FPs, then, is critical for the vast majority of annuity purchases, which implies that buyers’ perception of the purchase process depends heavily on the actions taken by FPs.

For the overwhelming majority of annuity buyers, FPs play a significant role in the annuity purchase process, which is generally viewed positively. When asked whether they agreed with a series of statements about their buying experience, nearly 2 in 3 strongly agreed that their FPs provided excellent service throughout the process and acted in their best interest when making the annuity recommendation (Figure 1). At least 8 in 10 buyers somewhat or strongly agreed that the FP’s recommendation was decisive in their purchase decisions, that they had enough information about the annuity before buying it, that they feel confident they made the right decision, and that the product they bought fits well into their portfolios. Nearly 9 in 10 found the purchase process “easy.” And buyers are far more inclined to agree than disagree that they would recommend annuities to friends or family members; in effect, annuities have a high net promotor score, with promoters (36 percent strongly agreeing) vastly outnumbering detractors (5 percent disagreeing).

Agreement With Statements About Annuity Purchase Process

Filter the data in this chart by clicking on a color bar in the chart legend.
Based on 316 investors who purchased an annuity within the previous three years. For statements referencing FPs, results are based on 207 investors who work with FPs.

Perhaps the only finding of concern is that 4 in 10 buyers wished that they knew more about annuities before buying one. Educational campaigns and easy-to-understand materials can help, but annuities can be complicated products. Just as car buyers don't need to fully understand how a car works, it's unrealistic to expect every annuity buyer to have the same level of understanding as their financial professional. The goal isn’t for buyers to have perfect, comprehensive knowledge but rather to understand the key components of annuities and their role in their portfolios. Buyers’ feedback strongly suggests that this goal has been achieved.

The annuity industry will continue to face regulatory headwinds, but can adapt as it has so often in the past, keeping the downstream impact on the buying experience to a minimum. The trusted relationship between FPs and their investor clients remains the cornerstone for long-term success.