2024 Survey Reveals Widespread Challenges in U.S. Annuity Literacy Amid Rising Sales

Annuities have seen a significant rise in popularity in the U.S., with sales reaching a record $385.4 billion last year, reflecting a 23% increase from the previous year. This surge occurs amid economic uncertainty and elevated interest rates, which often drive demand for guaranteed income products. Despite their growing use, awareness and understanding of annuities remain low among the American public. A recent 2024 Policygenius Annuities Literacy Survey reveals that 79% of American adults cannot correctly define an annuity, underscoring widespread confusion about these insurance contracts. Annuities serve as insurance contracts providing guaranteed income streams, commonly for life, helping consumers manage the risk of outliving their savings, especially post-retirement. However, their complexity, including the presence of different types such as variable annuities subject to securities regulations, makes them challenging to comprehend without professional advice. The survey highlights that only 16% of adults aged 35 to 54 and 25% of those 55 and older could accurately describe an annuity. Education level influences annuity knowledge: those with four-year college degrees or higher were twice as likely to understand annuities than those with less education, yet only 29% of college-educated respondents identified the correct definition. Moreover, many Americans confuse annuities with other financial products such as IRAs, 401(k) plans, or life insurance policies. For instance, 14% mistook annuities for Roth IRAs. Financial literacy regarding when annuities can be beneficial remains limited; only 21% recognized their potential use at any life stage, and about 35% were unsure of appropriate timing for annuity benefits. This uncertainty spans education levels, suggesting gaps in financial education and advisory communication. These results reflect broader challenges in personal finance education, with annuities particularly complex to categorize within curricula and advisor training. Experts note that annuities sit at an intersection of different financial advisory disciplines, complicating uniform guidance. Fee structures and perceptions of costs, often around 1% to 1.5%, contribute to debate within the advisory community. The lack of streamlined education pathways for advisors and consumers alike makes it difficult to convey annuity benefits clearly. Efforts to enhance personal finance education are expanding, with two-thirds of states now requiring such courses for high school graduation as of 2024. Nevertheless, more targeted education on complex products like annuities is necessary both for consumers and professionals to facilitate informed decision-making. For consumers considering annuities, verifying financial advisor credentials through state insurance departments and regulatory bodies like FINRA is recommended. Given the product's complexity and regulatory environment, consulting advisors with deep product knowledge is advisable. Annuities offer both potential benefits and risks depending on their use and context within a financial plan. When correctly integrated, they can solve various financial challenges; conversely, misapplication may lead to adverse outcomes. Market participants and educators continue to seek consensus on best practices for annuity education and consumer communication. The data underpinning these insights come from a nationally representative online survey conducted by YouGov for Policygenius in April 2024, involving over 2,300 U.S. adults. The margin of error stands at approximately ±2%, lending robustness to the findings. This analysis supports ongoing industry discussions on improving clarity and education around annuities amid shifting economic conditions and aging demographics.