Annuities tend to benefit:
- Individuals whose Social Security income does not fully cover essential expenses
- Workers without pensions
- Savers who are hesitant to spend down their investments
- People expecting longer retirements
- More conservative/risk-averse investors
- Higher earners looking for additional tax-deferred growth
The answer matters more than ever, and it starts with a question many people don’t ask until it feels urgent: What happens if my money in retirement runs out?
For decades, retirement planning relied on a relatively stable formula. Social Security and pensions provided a base of guaranteed income, while personal savings played a supporting role. Today, that model has largely disappeared, replaced by defined contribution plans that shift responsibility of turning savings into income onto the individual.
That shift introduces a new kind of uncertainty—not just how much someone has saved, but how confidently they can convert those savings into income that lasts.
Annuities are designed to address that specific problem. But, as with any retirement product, their value depends on who is using them and why.
The confidence paradox—and why it matters in the annuity conversation
Prudential, one of the largest providers of annuity products in the U.S., has analyzed retirement income gaps across mass-affluent individuals to understand how people feel about retirement. According to its 2025 Global Pulse Retirement Survey, nearly 9 in 10 people say they feel confident they’ll be able to cover essential expenses in retirement, but only 41% work with a financial advisor and just 32% have a written plan.1
That disconnect creates what Prudential calls the confidence paradox—where people feel prepared, but many have not built a reliable income structure to support that confidence. It’s like feeling prepared for your vacation, but not having bought your plane ticket yet.
In practice, this paradox tends to show up among people who are relying heavily on savings without a clear plan for how those assets will translate into income. This is exactly where an annuity can help provide peace of mind, likely contributing to the fourth year of record annuity sales in the U.S. ($464.1 billion) according to LIMRA.2
How annuities work
An annuity is a contract between you and an insurance company that can help provide protected growth for your retirement savings, while giving you options for protected income for life.
The basic structure is relatively simple, even though the products themselves can vary. You provide money to an insurer either as a lump sum or through a series of payments, and, in return, the insurer agrees to provide income payments either immediately or at a future date.
In most cases, there are two phases:
- Accumulation phase—when money is contributed and may grow over time
- Income phase—when that balance is converted into payments, which can be designed to last for a set period or for the rest of your life
What makes annuities different from traditional investments is not just growth; it’s the protected income structure. Instead of drawing down a portfolio and hoping it lasts, an annuity can convert a portion of savings into income that is generated to continue regardless of market conditions or lifespan.
That distinction is what makes annuities relevant for retirement planning. They are not typically used to replace investments, but to complement them by covering spending that needs to be predictable. They work best as part of a well-rounded financial plan which can include growth investments like stocks, safety nets like cash or bonds, and other guaranteed income sources like pensions and social security.
This means a retiree might use:
- Social Security as a foundation
- An annuity to reinforce essential expenses
- Investments to support flexibility and growth
A simple way to understand where annuities fit
One of the most effective ways to evaluate retirement income is to separate spending into two categories: essential expenses and everything else.
Essential expenses (housing, food, healthcare) are non-negotiable. They need to be covered regardless of market conditions or life expectancy. Discretionary expenses, like travel or entertainment, are more flexible.
This distinction matters because not all income behaves the same way. Income tied to markets can fluctuate. Withdrawals from savings require ongoing decision-making. But certain income sources, like Social Security, pensions, or annuities, are designed to be consistent.
For that reason, many retirement strategies prioritize covering essential expenses with income that is predictable and does not depend on market performance.
Where income gaps tend to emerge
For many retirees, Social Security provides a foundation of guaranteed income, but it often doesn’t fully cover essential expenses.
The gap isn’t always dramatic, but it can be meaningful. Even a small shortfall can create pressure over time, especially when it forces retirees to rely on withdrawals from market-based assets to fund basic needs.
The following hypothetical situation illustrates how narrow that margin can be:
| Income Source | Average Monthly Amount | Coverage of Essential Expenses |
|---|---|---|
| Social Security benefit 3 | $2,076 | Partial coverage |
| Medicare Part B premium 4 | – $203 | Reduces available income |
| Net spending power | $1,873 | Often below full needs |
| Essential expenses | $1,600 – $1,850 | Core baseline |
| Remaining monthly budget | $23 – $273 | Limited flexibility |
In this type of scenario, even when income technically covers essentials, there is very little room for unexpected expenses, lifestyle expenditures, or overall confidence in spending decisions.
When essential expenses are partially funded by withdrawals, retirees become more sensitive to market conditions, particularly in the early years of retirement when sequence risk is highest.
This is often the point at which annuities enter the conversation. By converting a portion of savings into predictable income, they can help reinforce the baseline—reducing reliance on market-driven withdrawals for non-negotiable expenses.
Who tends to benefit most—and why
While annuities are not a one-size-fits-all solution, their value becomes clearer when viewed through specific financial situations. Certain groups tend to benefit more consistently, particularly when there is a gap between assets, income, and confidence.
Below is a list of potential profiles of people who could benefit most:
1. Individuals whose Social Security income does not fully cover essential expenses
a. This cohort is one of the most straightforward beneficiaries. In these cases, an annuity can help close a structural income gap, reducing the need to draw from savings for basic needs and helping stabilize monthly cash flow.
2. Workers without pensions
a. Many private sector workers in the U.S. don’t have access to a workplace-provided pension. Without a built-in source of lifetime income, they must convert accumulated savings into a sustainable income stream on their own. An annuity can play a pension-like role in that process, providing a portion of income that does not require ongoing management or guesswork.
3. Savers who are hesitant to spend down their investments
a. Research co-authored by David Blanchett, head of retirement research at Prudential and a portfolio manager at PGIM, and Michael Finke finds that many retirees are not comfortable spending what they’ve spent their whole lives saving, viewing their nest eggs as something to protect—not draw down. Lifetime income (like an annuity), however, can act as a behavioral unlock, giving retirees a license to spend these guaranteed funds.5 Without it, retirees tend to underutilize their savings. In these cases, a predictable income stream can provide a clearer framework for spending and making retirement savings feel more usable.
4. People expecting longer retirements
a. Individuals who expect longer retirements face greater exposure to longevity risk, meaning the possibility of outliving their assets increases the older they become. For them, guaranteed lifetime income can reduce that uncertainty in a way that traditional withdrawal strategies cannot, regardless of whether retirement lasts 20 years or 40.
5. More conservative/risk-averse investors
a. More conservative investors, or those particularly sensitive to market volatility, may find it difficult to rely on portfolios alone to fund essential expenses. Separating a portion of income from market performance can help reduce that stress, allowing the remainder of a portfolio to be managed with a longer-term perspective.
6. Higher earners looking for additional tax-deferred growth
a. Even among higher earners, annuities can serve a different purpose. Those who have already maximized traditional retirement accounts may look for additional ways to defer taxes on long-term savings, and certain annuity structures can support that goal.
Who may not benefit from annuities as much
Annuities may be less suitable for individuals who need near-term liquidity or expect to use large portions of their savings in the short term. They may also be less necessary for those whose essential expenses are already fully covered by Social Security and pensions, or for investors who are comfortable managing withdrawals and market risk independently.
As with any financial tool, the value of an annuity depends on how well it fits within a broader plan.
Financial advisors play a critical role in helping clients figure out if an annuity is right for them and their retirement goals.
Why this conversation is becoming more relevant
The increasing focus on annuities reflects a broader shift in retirement planning. The question is no longer just how much to save, but how to translate savings into income that can support decades of spending.
As traditional sources of guaranteed income decline, that responsibility has moved to the individual—and with it, the need for solutions that provide greater clarity, stability, and confidence.
The bottom line
Annuities tend to be most valuable for people who are looking to create a reliable foundation of income for essential expenses—particularly when other guaranteed sources fall short.
In that role, they are not designed to replace investing. Instead, they sit alongside it, helping to ensure that the most important expenses in retirement are covered in a way that does not depend on markets, timing, or assumptions about lifespan.
Learn how Prudential can help you protect your life’s work.
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Citations:
1 “2025 Global Retirement Pulse Survey,” Prudential Financial, October 2025.
2 “LIMRA: Final U.S. Retail Annuity Sales Set New Sales High, Totaling $464.1 Billion in 2025,” LIMRA, March 2026.
3 “The Average Social Security Check in 2026 Is $2,076. Here Is What That Actually Covers,” Gerelyn Terzo, 247wallst.com, May 2026.
4 “Medicare Program; Medicare Part B Monthly Actuarial Rates, Premium Rates, and Annual Deductible Beginning January 1, 2026,” Federal Register, November 2025.
5 “Guaranteed Income: A License to Spend,” Retirement Income Institute, David Blanchett and Michael Finke, May 2024.
The Prudential Insurance Company of America, Newark, NJ, and its affiliates.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Annuity guarantees are dependent on the claims-paying ability of the issuing company.
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