Annuity Boom’s Hidden Risks: Private Credit, Complexity, and Why Consumers Hesitate in 2026

US annuity sales reached $107.4 billion in the first quarter of 2026, extending a multiyear run of quarterly records that saw full-year 2025 sales hit $464.1 billion — the fourth consecutive annual record. Yet behind those headline numbers lies a three-sided problem that the industry, regulators, and academic researchers are all grappling with simultaneously: consumers who need guaranteed income the most are the least likely to buy it, even well-informed savers struggle to navigate annuity complexity, and the investment strategies funding those record sales have grown so dependent on private credit that the NAIC and Federal Reserve are raising alarms.

This post examines three developments from the June 2026 news cycle that together paint a picture of an industry growing fast but fracturing under its own complexity — and what it means for anyone considering annuitized retirement income.

LIMRA Data: Record Sales, Persistent Adoption Gap

According to LIMRA’s US Individual Annuity Sales Survey, Q1 2026 annuity sales totaled $107.4 billion, up 1% year over year. The growth was not uniform across product types. Registered index-linked annuities rose 20% to $21.1 billion, and traditional variable annuities climbed 17% to $17.2 billion — both benefiting from consumer demand for market participation with downside protection. Single premium immediate annuities gained 22% to $3.7 billion, and deferred income annuities rose 5% to $950 million. Meanwhile, fixed-rate deferred annuities fell 12% to $35.6 billion and fixed indexed annuities slipped 4% to $26.8 billion, reflecting consumers shifting away from rate-sensitive products as interest rate expectations became less certain.

Bryan Hodgens, senior vice president and head of LIMRA research, noted that “while economic conditions remain uncertain, consumers continue to prioritise financial protection and guaranteed income solutions as they prepare for retirement.” LIMRA expects demand to remain elevated through 2026.

But the more revealing analysis came from Tina Beckwith, chief marketing officer of LIMRA and LOMA, who wrote in the organization’s June MarketFacts publication that the gap between retirement need and actual adoption stems from behavioral barriers — not product availability or pricing. She identified three primary obstacles: loss aversion, decision paralysis around complex products, and underestimation of longevity risk. Critically, Beckwith observed that more consumer education can actually reinforce the perception that annuities are too complicated rather than reducing it.

Her recommendation is to reframe lifetime income around outcomes — describing the approach as a “personal pension” — rather than leading with technical features or rate comparisons. She called on carriers and advisors to normalize partial allocation to guaranteed-income products, presenting annuities as one component of a retirement income plan rather than an all-or-nothing decision. This aligns with the broader industry context of LIMRA’s “Peak 65” demographic wave, in which more than four million Americans turn 65 annually, many without pensions to cover basic retirement costs.

A bipartisan House resolution introduced by Rep. Zach Nunn (R-Iowa) and Rep. Brittany Pettersen (D-Colo.) calls on federal, state, and local entities to observe June as National Annuity Awareness Month and encourages savers to seek professional guidance on lifetime-income planning — a signal that the retirement income gap is gaining political recognition beyond the insurance industry itself.

NBER Research: Even Well-Informed People Struggle to Choose Annuities

The behavioral barriers Beckwith identified received independent confirmation from an unlikely source: a working paper published June 2026 by the National Bureau of Economic Research. Jeffrey R. Brown, a professor of finance at the University of Illinois Urbana-Champaign and a member of the TIAA board of trustees, analyzed existing studies on the relationship between financial literacy and annuity use.

Brown’s finding was counterintuitive: retirement savers who understand what annuities are and how they work may not be much more likely to buy annuities than anyone else. “Rather, financial and longevity literacy are likely to help individuals do a better job of determining whether additional annuitization is appropriate for them,” he wrote. In other words, financial literacy helps people evaluate annuities but does not necessarily push them toward purchasing.

Brown identified a factor beyond financial literacy that contributes to low annuity use: lack of longevity literacy. Even when people know their life expectancy, they “frequently fail to appreciate the substantial probability of living well beyond the mean.” Many people underestimate survival probabilities at advanced ages, which undermines the perceived value of a lifetime income guarantee.

But Brown’s main conclusion is that the annuity products themselves are the problem. “Low annuitization rates may reflect avoidance of complex and opaque products rather than informed rejection of longevity insurance,” he wrote. “Literacy improves individuals’ ability to engage with complex choices, but it does not eliminate cognitive limits, learning constraints, or emotional responses to mortality-related decisions.”

For advisors and insurance professionals, Brown’s advice is not to steer clients toward or away from annuities, but to “help them understand tradeoffs such as liquidity versus guaranteed income, longevity protection versus flexibility, and the range of retirement income strategies.” He also suggested that 401(k) plan sponsors offer a carefully tailored menu of lifetime income options and give participants a chance to test a lifetime income option for a year or two before locking it in.

The Private Credit Surge: What Record Annuity Sales Fund

While consumers struggle with whether to buy annuities, the industry is grappling with what to do with the money once they do. A June 2026 report from Morningstar DBRS highlighted how the business models supporting record annuity sales have become materially more complex, with a growing dependence on private credit and structured securities.

US retail annuity sales reached a record $461 billion in 2025. The fixed indexed annuity (FIA) segment alone reached $127.9 billion, making it the fastest-growing annuity category for the third consecutive year. Alternative asset manager (AAM)-backed annuity platforms accounted for more than 40% of FIA sales among the top 20 carriers by the end of 2025. A report from Athene found that the average private credit allocation among its top 10 peers was approximately 26%.

Private illiquid bond holdings across the US life insurance industry reached $807 billion at year-end 2025, up $122 billion in a single year, according to Moody’s. The top 10 life insurers hold $352 billion, or 44% of the total, while accounting for only 24% of total industry fixed income. The private credit default rate tracked by Proskauer’s index rose to 2.73% in Q1 2026, up from 1.84% two quarters earlier — a trajectory that suggests credit quality may be deteriorating even as exposure grows.

Regulators Tighten Oversight as Complexity Grows

The National Association of Insurance Commissioners (NAIC) has focused on balance sheet transparency and capital requirements since 2025. Late-stage proposals on collateralized loan obligations (CLOs) would increase capital charges on tranches rated BBB and below. The NAIC’s CLO modeling project implementation has been pushed to December 31, 2026, with a revised approach that introduces tranche thickness as a key capital driver.

Under a separate proposal, collateral loans backed by equity interests could face a risk-based capital charge of 30%, up from 6.8%, according to Fitch Ratings. Outstanding Federal Home Loan Bank (FHLB) advances to US insurance companies reached a record $177.9 billion in 2025, with insurers’ share of total FHLB borrowing rising to 26% from 17% in 2022. Morningstar DBRS warned that heavier reliance on that funding source could reduce liquidity flexibility under stress.

A Federal Reserve staff note described life insurer and asset manager partnerships as creating opaque structures that obscure the true leverage of both parties. The concern extends beyond individual insurer solvency to systemic risk: if credit conditions deteriorate while capital requirements tighten simultaneously, carriers with the most complex, private credit-heavy models face the greatest uncertainty.

Top Annuity Carriers and Their Private Credit Exposure

The annuity market is increasingly dominated by AAM-backed platforms that use private credit strategies to generate the yield needed to support guaranteed income products. The following table compares the key players and their market positioning.

Why This Matters to Policyholders

For consumers evaluating annuities, these three developments converge on a practical question: is the product you are buying backed by investment strategies that can withstand a credit downturn? The record sales figures and the industry’s financial strength — AM Best projects capital and surplus will reach $564.3 billion in 2026 — suggest the answer is yes under current conditions. But Morningstar DBRS’s warning that “performance differentiation across the sector is likely to widen under stress” means that carrier selection matters more than ever.

The behavioral research from both LIMRA and NBER underscores a parallel consumer-side risk: the complexity that makes annuities hard to choose also makes them hard to evaluate after purchase. Consumers who buy annuities they do not fully understand may be surprised by surrender penalties, liquidity restrictions, or the interaction between guaranteed income and inflation over a 20-30 year retirement horizon.

• Behavioral barrier: Loss aversion and decision paralysis prevent consumers from converting retirement need into annuity purchases, even when the financial case is strong.
• Complexity barrier: Academic research confirms that product complexity — not lack of education — is the primary obstacle to annuity adoption, even among financially literate savers.
• Regulatory risk: The NAIC is tightening capital requirements on private credit and CLOs, which could compress insurer margins and raise the cost of guaranteed income products.
• Credit quality deterioration: Private credit default rates have risen 48% in two quarters, from 1.84% to 2.73%, even as insurer exposure to private credit hit $807 billion.
• Demographic urgency: Peak 65 brings four million Americans to retirement age annually, many without pensions, making the adoption gap a societal concern, not just an industry one.

How to Take Action

1. Step 1: Assess your retirement income gap. Calculate how much guaranteed income you will need beyond Social Security and any pension, then determine what portion an annuity could cover.
2. Step 2: Research carrier financial strength. Check AM Best ratings for any insurer you are considering — a carrier’s financial strength rating is the best indicator of its ability to meet long-term guarantees.
3. Step 3: Compare annuity types side by side. Fixed indexed annuities, variable annuities, and immediate annuities serve different purposes — understand the tradeoffs before committing.
4. Step 4: Consult a licensed advisor. Given the complexity barriers identified by research, working with a fiduciary advisor who is not compensated by product sales can help navigate the tradeoffs without conflict of interest.

What the Future Holds for Annuity Buyers

The convergence of record sales, regulatory tightening, and academic confirmation of behavioral barriers suggests the annuity market is at an inflection point. If the NAIC’s proposed capital requirements take effect as scheduled on December 31, 2026, carriers with the most private credit-heavy models may need to reduce allocations or raise prices to maintain capital adequacy. That could mean fewer product options or higher costs for consumers just as Peak 65 drives demand higher.

At the same time, the industry’s growing recognition that education alone does not close the adoption gap could lead to product simplification. Brown’s research suggests that offering a carefully curated menu of lifetime income options — rather than a sprawling catalogue of complex products — may be the most effective way to help consumers make good decisions. LIMRA’s Beckwith goes further, advocating for standardized plain-language messaging and the “personal pension” framing that focuses on outcomes rather than features.

For now, the paradox remains: annuities are selling at record levels, but the people who need them most are the least likely to buy them, the products are hard to understand even for experts, and the investment strategies funding the guarantees are drawing unprecedented regulatory scrutiny. Consumers who navigate this landscape successfully will be those who understand not just the products, but the risks behind them.

Frequently Asked Questions

Why are annuity sales at record levels if consumers are hesitant?

Record annuity sales are driven by a combination of the Peak 65 demographic wave — four million Americans turning 65 annually — and consumer demand for guaranteed income in an uncertain interest rate environment. However, the adoption gap refers to the gap between the number of people who could benefit from annuities and those who actually purchase them. Record sales in absolute terms still represent a small fraction of the retirement-age population that lacks pension coverage.

Does financial literacy increase annuity purchases?

Research by Jeffrey R. Brown published in a June 2026 NBER working paper found that financial literacy does not reliably increase annuity purchasing. Literacy helps individuals evaluate whether annuitization is appropriate for their situation, but product complexity and emotional responses to mortality-related decisions remain obstacles even for well-informed savers. The correlation between literacy and annuitization rates is not stable across studies.

What is the private credit risk in annuities?

Life insurers have increased allocations to private credit and structured securities to generate the yield needed to support annuity guarantees. Private illiquid bond holdings reached $807 billion at year-end 2025, up $122 billion in one year. The private credit default rate rose to 2.73% in Q1 2026. Regulators including the NAIC and the Federal Reserve have flagged the opacity of these investments as a growing concern, particularly under stress scenarios.

What is the NAIC doing about private credit in annuities?

The NAIC has proposed increasing capital charges on CLO tranches rated BBB and below, with implementation targeted for December 31, 2026. A separate proposal would raise the risk-based capital charge on collateral loans backed by equity interests from 6.8% to 30%. The NAIC’s CLO modeling project introduces tranche thickness as a key capital driver, which could significantly increase capital requirements for insurers with heavy private credit exposure.

Should I buy an annuity given these risks?

The investment-side risks primarily affect insurers’ capital strategies, not the guarantees themselves. Annuity guarantees are backed by the issuing insurer’s general account and are only at risk if the insurer becomes insolvent. Checking AM Best financial strength ratings and diversifying across highly rated carriers are the most effective ways to mitigate this risk. The bigger question is whether an annuity fits your retirement income strategy — a decision best made with a fiduciary advisor.

What is the “personal pension” approach to annuities?

LIMRA’s Tina Beckwith coined the “personal pension” framing as an alternative to leading annuity discussions with technical features or rate comparisons. The approach describes guaranteed lifetime income as one component of a retirement income plan — not an all-or-nothing decision — and normalizes partial allocation to annuitized products. The goal is to reduce decision paralysis by focusing on outcomes rather than product mechanics.

Related Resources

• AM Best Insurance Ratings — Check the financial strength rating of any annuity carrier before purchasing.
• NAIC Consumer Resources — Regulatory guidance on policyholder rights and annuity suitability standards.
• Social Security Administration — Understand your baseline guaranteed retirement income before evaluating annuity supplements.

Learn More About Life Insurance and Retirement Planning

If you are exploring annuities as part of a retirement income strategy, it helps to understand the broader life insurance and retirement planning landscape. Our annuity adoption gap analysis covers the behavioral barriers in depth, our Q1 2026 life insurer earnings report breaks down the financial data behind the headlines, and for understanding how life insurance products compare to retirement investments, see our life insurance vs. investments guide. For a broader overview of product types, our types of life insurance explained guide covers the full spectrum.

Get a Personalized Quote

Understanding annuities is only the first step. If you are ready to compare guaranteed income options from top-rated carriers, get a free quote today. Our licensed advisors can help you navigate the complexity barriers identified by research and find a lifetime income solution that fits your retirement goals — without the all-or-nothing pressure that makes annuity decisions so paralyzing.