That helps explain why nervous savers have recently latched on to investment-linked annuities—an alphabet-soup lineup known as FIAs, RILAs and VAs. Sales of these products in the U.S. grew 29 percent in 2024 and another 6 percent in the first nine months of 2025; they now account for 57 percent of all annuity sales.

Yet these investment-linked annuities aren’t for everyone. Their costs can be hard to decipher and may be unexpectedly high. Their terms can be confusing and easily misunderstood. They can tie up your money for years. And big sales commissions can lead some financial professionals to pitch them inappropriately. Here’s what you need to know.

Generally speaking, annuities are an insurance product that can create a lifelong income stream. Plain-vanilla income annuities work mostly like this: In return for a sum of money, an insurer will pay you a certain amount on a regular basis, usually monthly, for the rest of your life. The guaranteed income is based chiefly on current interest rates and your age and gender. The movement of the stock market is irrelevant.

But investment-linked annuities are different. Both their value and the income stream it’s possible to draw from them can be affected by the stock market’s performance. And—this can be confusing—even though their name implies yearly income, they’re usually used for more than just creating a stream of payments. You can use one to build retirement savings over many years by capturing some of the stock market’s growth, and decide later if you want to turn the annuity into regular income, take nonannuitized withdrawals or leave your investments for heirs.

Even more confusing, most people who do create an income stream from these annuities don’t do so by turning them into plain-vanilla annuities. Instead, at the outset, they pay extra for an insurance rider that guarantees a minimum income stream later—one that may be increased by the stock market’s performance.

These products come in three basic flavors:

▶︎ Fixed-Index Annuities (FIAs) Typically, these promise that the dollar amount of your investment won’t go down, in return for a percentage cap on how much it can rise per year. For example, say you buy a $10,000 FIA with a 10 percent cap and a value linked to the performance of the S&P 500, a basket of 500 large company stocks traded in the U.S. If the S&P 500 falls in value, you’ll still have $10,000 at the end of the year. If it rises anywhere between zero and 10 percent, your investment will rise the same amount. But if the S&P rises more than 10 percent, you won’t get any additional benefit. So in 2024, when the S&P rose 23.3 percent, that $10,000 FIA would have gained not $2,330 but only $1,000.

▶︎ Registered Index-Linked Annuities (RILAs) Like FIAs, these link to stock indexes, but they generally have higher limits on gains. In return, you face the possibility of losses, though they generally are limited in the form of what’s known as a buffer. If you had a RILA with a 20 percent buffer, for example, your annuity wouldn’t fall in value as long as the linked index fell no more than 20 percent. But any losses beyond that would be yours, so if the index fell 25 percent, the value of the investments in your RILA would be down 5 percent. (Once you turn on your income stream, a negative return won’t impact your guaranteed minimum income.)

▶︎ Variable Annuities (VAs) For these annuities, you have a menu of mutual funds to invest in. Like any mutual fund, the funds you own in a VA can rise and fall in value; you don’t have downside protection for the money you invest. But if you buy an income rider, you do get protection for that future income stream; once you’re ready to turn on the annuity’s income spigot, your guaranteed minimum lifelong income will be based primarily on your original investment, your age and interest rates. As long as your withdrawals don’t exceed the minimum, your monthly income won’t fall below that amount; it may even rise if your investments grow in value.

If you’ve purchased a guaranteed income rider, as most people do, you remain invested in your FIA, RILA or VA after you begin taking the income. If the investments in your annuity grow, there is a chance your income can rise. While you have the option of taking withdrawals from your annuity that exceed your current guaranteed minimum, that’s usually a last resort, since it will either nullify any income guarantees or greatly reduce your payout.

If you don’t have an income rider and decide to create your income stream by rolling your account into an income annuity, your payments will be determined by the lump sum paid into the new annuity, your life expectancy, interest rates and other factors; the market’s performance will no longer matter. Unlike the case with investment annuities, you usually can’t change your mind; you can’t get back the lump sum you’ve paid or take an extra withdrawal.

The key benefit to annuities—whether FIAs, RILAs, VAs or simpler income types—is that they can potentially pay more income than you would get by investing the purchase price on your own. That’s because annuity buyers who happen to die earlier than expected indirectly subsidize annuity buyers who happen to live longer than expected. (It’s similar to how insurance claims of homeowners whose houses burn down are subsidized by the premiums of homeowners who don’t need to make claims.) “If you live beyond a normal life expectancy, the annuity is very valuable to you,” says Mark Cortazzo, recently retired from Wealth Enhancement Group in Parsippany, New Jersey.

FIAs and RILAs, despite their links to the stock market, are best understood as replacements for bonds in a person’s portfolio, says Wade Pfau, founder of the financial firm Retirement Researcher. These annuities will typically underperform stocks due to their caps, but they have potential to outperform bonds because their returns are tied to a stock index, and stocks usually outperform bonds. The buffered losses of FIAs and RILAs can bring peace of mind that enables you to invest more of your portfolio in stocks for more potential growth, says Gregory Olsen, a partner at Lenox Advisors in New York.

The gains you’ll get from the rise of an index associated with your FIA or RILA will be less—and perhaps far less—than the total returns you can get from investing the same amount of money in a mutual fund or an ETF tracking the same index. As already pointed out, FIAs and RILAs put caps on returns, so you’ll miss out on any gains beyond that cap. In addition, unlike mutual funds, those annuities credit you only the increase in a stock index and not the dividends paid out by companies in the index. Missing out on dividends can cost a lot: Since 1926, they’ve amounted to more than 30 percent of the total return of the S&P 500.

While VAs don’t cap your returns, they can have multilayered fees that are all over the map. They charge a mortality and expense fee ranging from 0.5 to 1.5 percent. You will also pay a fee for underlying investments ranging from 0.6 to 3 percent, depending on the funds you choose. An income rider will add on another 0.25 to 1.5 percent. Added up, these annual fees can be substantial. In comparison, the average index fund charges 0.05 percent.

In addition, once you buy an annuity, retrieving your money can be very costly. To recoup the commissions insurers pay professionals to sell these products, most annuities include surrender periods ranging from three to 10 years, during which you pay a penalty for taking your money out. Withdrawing money from an annuity will most likely reduce your future income stream. Advisers who charge a fee for their services instead of collecting commissions, however, may be able to identify an annuity without a surrender charge.