Policygenius examines the simultaneous popularity and mystery surrounding annuities in an uncertain American economy and explains what they are and how they can benefit a financial plan.Roughly 4 out of 5 American adults don’t know what an annuity is
In an uncertain economy fueled by high interest rates, annuities are more popular than ever. Last year, annuity sales soared to a record-high $385.4 billion in the U.S., a whopping 23% increase over the year before. However, roughly four out of five American adults (79%) still struggle to identify the correct definition of an annuity, according to the 2024 Policygenius Annuities Literacy Survey. Key findings:Only 19% of American adults are able to identify the correct definition of an annuity.Less than three in 10 (28%) American adults with four-year college degrees are able to identify the correct definition of an annuity.Over a third of American adults (35%) don’t know when buying an annuity could benefit them.Only 5% of American adults are able to both identify the correct definition of an annuity and accurately indicate at what age using an annuity could benefit them.
PeopleImages.com – Yuri A // Shutterstock
Many Americans Are Confused About Annuities—and Other Financial Tools
Annuities are insurance contracts that provide a guaranteed stream of income, most often for life. Many people use annuities to offset the risk of outliving their savings, or to supplement their income later in life, usually after they retire.But unlike other financial products that have also become popular in recent years, such as credit card rewards and even cryptocurrency, annuities are complex — it can be hard to pick the right contract without the guidance of a financial advisor.Just 16% of Americans aged 35 to 54 were able to correctly define an annuity. Older adults were more likely to know what an annuity is, but only one in four Americans aged 55 and up identified the correct definition in the survey.Further, college-educated Americans are twice as likely to know how an annuity works than participants with a lower level of education (29% of those with a four-year degree or more vs. 14% of those with some college or less), according to the survey.Still, almost three in 10 (29%) with four-year degrees or more were able to identify the correct definition of an annuity — compared to 14% with some college or a two-year degree, or less.These results suggest annuities aren’t the only financial tool that American adults are confused about. Roughly one in three (34%) U.S. adults mistook annuity contracts for other products like IRAs, 401(k) plans, or even life insurance policies.In fact, 14% of all respondents matched an annuity to the definition of a Roth IRA. Further, 9% of a