Making sense of the RILA revolution

Registered index-linked annuities (RILAs) continue to reshape the annuity landscape. With more than $65.6 billion in 2024, 38% higher than the prior year*, RILAs have become the fastest-growing annuity category designed for clients seeking accumulation potential with a level of market risk control. Here’s what’s driving the momentum behind this innovative product — and how it can help support long-term retirement strategies.

Why RILAs are rapidly gaining popularity

The annuity industry continues to evolve to meet the ever-changing demands of consumers. When fixed indexed annuities (FIAs) were introduced in the mid-1990s, they filled in a rather large gap in the annuity risk spectrum. FIAs answered the call for growth potential beyond a simple fixed rate of return while providing guaranteed protection from loss due to market downturns. 

Registered index-linked annuities (RILAs) were the next logical step. Since RILAs hit the market in 2010, they’ve been steadily building momentum, addressing the growing demand for stronger accumulation potential with managed market risk.

The evolution of annuity risk-management

Also referred to as buffered annuities, structured annuities or indexed variable annuities, RILAs are viewed as a cross between a fixed indexed annuity (FIA) and a variable annuity (VA). While the majority of FIAs are designed with income in mind, RILAs are built for growth. In fact, out of all the annuities available today, RILAs offer the highest growth potential of any risk-managed annuity product.

How RILAs balance growth potential and risk

RILAs manage risk with buffers or floors, tools that provide investors the opportunity to pursue growth potential based on their individual tolerance for risk. In exchange for taking on some market risk, clients can experience greater growth potential in the form of cap and participation rates generally higher than FIAs — making RILAs an attractive solution for accumulation-oriented investors and a viable alternative to VAs.

“RILAs bridge the gap between FIAs and VAs,” shares Grant Kvalheim, CEO of Athene. “They’re a great solution for clients in need of a financial solution that can promote asset growth while providing a level of protection from volatile markets.”

Why today’s market conditions favor RILAs

As it turns out, RILAs happen to be in the right place at the right time, especially for people trying to time retirement right in today’s economic conditions. With volatile markets, increasing political division, and global and domestic factors creating ever-changing economic conditions, these types of annuities have taken more market share in recent years than other types. And for good reason.

Faced with today’s challenges, consumers may be more likely to seek risk-managed products to help protect what they’ve gained combined with strong accumulation potential to maintain asset growth. Lingering uncertainty has created an opportunity for change, accelerating the need for RILAs in the marketplace and furthering a shift toward accumulation in the annuity industry.

According to Kvalheim, “RILAs are a timely and innovative solution that addresses the evolving needs of today’s investor in an increasingly complex planning environment.”

Tips for evaluating RILA products for clients

With RILA sales booming, carriers continue to jockey for position by offering new products in hopes of capturing their piece of the pie. But with such stiff competition, it can be hard to determine the best fit for your client. It’s important for you to analyze each product and carrier with a critical eye before offering a RILA — especially in light of the current DOL fiduciary and best interest rules.  

FAQs about registered index-linked annuities 

1. What is a registered index-linked annuity (RILA)?

A RILA is a risk-managed annuity that offers index-linked growth potential with partial protection from market downturns through buffers or floors.

2. How do RILAs differ from FIAs and VAs?

RILAs offer higher growth potential than FIAs in exchange for risk of market loss. Compared to variable annuities (VAs), RILAs offer less exposure to market loss with limits on growth potential.

3. Are RILAs designed for income or growth?

Most RILAs are designed primarily for accumulation, not guaranteed lifetime income.

4. What risk do RILAs include?

RILAs can involve partial loss of principal, depending on the buffer or floor selected, especially in severe market downturns.

5. Who might be a good fit for a RILA?

Clients seeking strong growth potential, structured risk management and a long-term strategy for retirement accumulation may benefit from a RILA.
 

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