Registered index-linked annuities (RILAs) are a newer type of retirement product that blends features of both fixed index annuities and variable annuities, offering a middle ground between safety and growth potential. Like variable annuities, RILAs are linked to a market index, such as the S&P 500, and their performance can rise or fall with the market. However, they’re less volatile because, like fixed index annuities, they place caps on both gains and losses. This structure allows investors to benefit from market growth while controlling risk.
The key difference from traditional fixed index annuities is that RILAs allow for higher growth caps but require the investor to accept some level of downside risk. That risk is managed through two customizable tools, a “floor” or a “buffer.” A floor sets the maximum loss you’re willing to take, with the insurer covering anything beyond that limit. A buffer works in reverse, with the insurer absorbing losses up to a set percentage and the investor responsible for anything beyond it. Generally, the more risks you’re willing to take, the higher your potential gain caps.
RILAs have grown rapidly in popularity, surpassing variable annuity sales for the first time in late 2023 and hitting record-breaking sales for five consecutive years. LIMRA projects RILA sales to remain strong in 2025, ranging from $62 to $66 billion, as investors seek options that can better keep pace with inflation while providing some protection in volatile markets.
Benefits of a RILA include participation in market gains, customizable downside protection, and tax-deferred growth until withdrawals are made. They can also be converted into an income stream during retirement. While RILAs carry more risk than fixed annuities, they offer more growth potential and flexibility in how you balance risk and reward.
Ultimately, RILAs are best suited for clients who want a balance between growth and protection, are comfortable taking on some market risk, and value the ability to tailor their investment strategy to their individual risk tolerance and retirement goals.
If you have any questions or clients in mind, please don’t hesitate to reach out to one of our sales consultants here at Wholehan to see how we could help you!