Key takeaways
A RILA is a deferred annuity that links your returns to a market index, giving you market participation with a defined level of downside protection.
RILAs have become one of the fastest-growing annuity categories, with industry reporting that 2024 sales reached $65.6 billion, up roughly 38% from 2023 and marking a 10th straight record year.¹
The main appeal is that you can choose strategies with buffers or floors for protection and caps or participation rates for upside, letting you tailor the risk-reward trade-off to your comfort level.
The biggest trade-off is that the cap rate is the real cost of protection: If the index gains 22% and your cap is 12%, you are credited 12%.
RILAs may be appropriate for certain investors depending on their financial goals, risk tolerance, and time horizon.
People planning and saving for retirement tend to have two big concerns: One is how to protect their assets from market volatility or a stock market downturn. The other is how to help ensure that their retirement savings will last long enough. A registered index-linked annuity (RILA) may help address these concerns in certain situations, depending on product design and use. However, annuities can be complicated, and the details of how they work can make a big difference in how much you actually earn.
What RILAs are and why they're growing so fast
Like other deferred annuities, a registered index-linked annuity, or RILA, is a contract with an insurance company that defines how your premium will grow, and how and when you can receive income from the contract. A RILA credits your returns based on the performance of a market index over a set term, while limiting some losses through a buffer or floor.
RILAs have increased in popularity in recent years because they may help answer a simple retirement planning problem: Many people want stock-market upside, but fewer want to absorb losses, especially right before or during retirement. In times of market volatility, the downside protection is attractive to many people, who accept the upside limit as a fair trade-off.
Why it's "registered": This simply means the annuity is treated as a security and is registered with and regulated by the SEC, not just by state insurance rules. Because returns in a RILA are linked to securities indices and the contract may lose value, the issuer must provide a prospectus and maintain an effective SEC registration statement.
How RILAs actually work
A RILA "strategy," the mechanism for determining your returns, typically combines three moving parts:
A downside protection method
An upside crediting method
A term length
The downside protection mechanism generally comes in one of two forms: There's either a buffer that absorbs losses up to a certain point (e.g., -10%), then you absorb losses beyond that amount; or a floor that limits your losses to a certain point (e.g., -10%), and the insurer absorbs losses beyond that. But that protection comes at a cost: RILAs may limit your upside.
Upside crediting is generally limited in one of two ways: There's either a potential cap that limits maximum gains or a participation rate that credits a stated percentage of index gains, subject to participation rates and contract limits (e.g., 60%).
Strategy term and crediting period: A RILA is a deferred annuity, which means you might have it for years before you start taking payments. However, your strategy will have a more limited term, such as one, three, or six years. If you have a multi-year strategy, gains may be locked in each year (this is called a "1-year crediting term") or only at the end of the strategy (this is called a "point-to-point design"). At the end of your strategy, it typically renews into a new term, or you'll get to choose another available strategy with different upside crediting and downside protection mechanisms.
How floors, buffers, caps, and participation rates can affect value differently
Here are some sample outcomes for how the value of a RILA annuity would change in a down year with a 10% floor versus a 10% buffer, or in an up year with a 10% cap versus a 60% participation rate. (Assumes a 1-year crediting term.)
You start with $100,000, and the index goes down 25%
Downside protection method | 10% floor | 10% buffer |
You absorb | $10,000 | $15,000 |
The insurer absorbs | $15,000 | $10,000 |
Ending value locked in | $90,000 | $85,000 |
You start with $100,000, and the index goes up 25%
Upside crediting method | 10% cap | 60% participation rate |
You gain | $10,000 | $15,000 |
Index gain not credited | $15,000 | $10,000 |
Annuity value at term end | $110,000 | $115,000 |
This example is hypothetical and for illustrative purposes only. It does not reflect actual performance and is not predictive of future results.
The case for RILAs: Who they may work well for
RILAs let you decide how much risk is acceptable and what you are willing to give up in return. They may be a consideration for people who want a middle path between full stock-market exposure and a level of principal protection: you get some participation in market gains (and the potential for greater gains than an interest-bearing account).
That combination is especially attractive in retirement planning because it can let money grow while reducing the sting of a downturn. RILAs also offer tax-deferred growth, so earnings can compound without annual taxation, as long as your money stays in the annuity.
For a late-career pre-retiree, these features matter because the biggest risk is often not just volatility, but a bad sequence of returns right before retirement. A RILA with a buffer or floor can soften the damage of a down year, which may help protect a retirement date or reduce pressure on the rest of your retirement portfolio.
RILAs can also be useful for mid-career savers who want more upside potential than many fixed index annuities but are not comfortable with the full volatility of a variable annuity. A buffered strategy can let them accept some downside beyond the buffer in exchange for higher caps or stronger market-linked growth potential. That trade-off can be a consideration for savers who want a structured way to stay invested through market cycles.
They may also be a fit for people who are reconsidering part of a bond or 60/40 allocation. In a low-interest-rate environment, a RILA can offer a different kind of conservative positioning: not pure safety, but controlled exposure to equity upside with some loss limitation. That can be valuable for people who want something more growth-oriented than bonds but less exposed than a traditional stock fund.
More broadly, RILAs can be a decent fit for people who want market participation plus a level of downside protection, plan to stay invested for the full product surrender period (typically six years), are willing to trade some upside for more controlled risk, and are comfortable with the limited liquidity that is inherent to all annuities.
The case against RILAs: What you give up
RILAs tend to have few, if any, explicit fees, but that does not mean the protection is free. As we’ve noted before, the protection from downside risk comes at a cost, in the form of the cap or participation rate that limits your gains, especially in strong bull-market years. As the example above shows, if the index gains 25% and your cap is 10%, you keep 10% and give up the other 15 percentage points of upside.
RILAs can also be complex and need to be managed. Specifically, choices need to be made each time the strategy term resets. Finally, like most annuities, RILAs also often have surrender periods, commonly six years, with declining surrender charges for early withdrawals. You can lose money by investing in a RILA, including the loss of principal and previously credited earnings.
RILA pros and cons at a glance
Pros | Cons |
|---|---|
Market‑linked growth potential, often higher caps than many fixed index annuities. | Limited upside due to caps or participation rates, so you may not fully benefit from strong bull markets. |
Some downside protection via buffers or floors, which can reduce or cap losses compared with equity investments or variable annuities. | Still real risk of loss; deep or prolonged market declines can push losses beyond the buffer or down to the floor level. |
Tax‑deferred growth on earnings, similar to other annuities, which can be attractive for retirement planning. | Liquidity constraints and surrender charges if you exit early. |
Ability to tailor risk-return trade‑offs by choosing different crediting strategies, terms, indices, buffers, or floors. | Complexity: structures can be hard to fully understand, increasing risk of confusion or mismatch with risk tolerance. |
Often no explicit fees compared with some traditional variable annuities. | Contract terms can vary widely between carriers (fees, protection levels, rate mechanics), making comparison shopping and due diligence more involved. |
RILA versus other types of annuities
Risk to principal | No risk; principal and stated interest are guaranteed by the insurer | Low; principal protection typically comes with a 0% floor | Moderate; partial downside protection, but losses to buffer or floor limits are possible | High; full market exposure unless a rider is added |
Return potential | Low; credited rate is fixed | Low to moderate; indexed but capped or limited | Moderate to high; often higher caps than many FIAs, but still below uncapped equities | High; uncapped market-like returns through subaccounts |
Typical fees | No fees | Generally low explicit fees, with costs embedded in upside caps or participation rates | Often lower or no explicit fees, with costs embedded in the structure | Usually the highest explicit fees for optional riders |
Liquidity considerations | Surrender charges often apply for early withdrawals, usually on a declining schedule | Similar surrender schedules to fixed annuities | Typical surrender charges and withdrawal limits, often over 6–10 years; strategy terms can further complicate withdrawal timing | Multi-year surrender charges and typically higher fees |
Taking the next step
If you think a RILA could be appropriate for your retirement savings plan, talk with your financial advisor about your options. Guardian can help.
A Guardian financial advisor will take the time to fully understand your retirement income needs, explain the ins and outs of RILAs, and, if it makes sense for your situation, tell you about annuity products such as Guardian MarketPerform®. Here’s how to find someone near you:
Frequently asked questions about RILAs
Any annuity could be a good investment with tax-deferred growth potential if it meets your investment objectives and retirement needs, which are different for everyone. Depending on your risk level, how close you are to retirement, and how much you have to invest now or in the future, a RILA could be a good way for you to help grow funds before you start taking income, and ultimately help ensure you don’t outlive all your retirement savings. RILAs can help you realize higher potential gains than fixed or fixed index annuities while still helping to partially mitigate your risk. At the same time, there are upside limits that can cap your investment earnings in ways that a variable annuity does not. The decision to invest in a RILA or other investment vehicle typically comes down to your desire for returns and comfort level with risk. It’s also important to note that RILAs can be more complex than other types of annuities, and there may be many types of terms and concepts (like “market value adjustment” and “negative index value”) that you should understand before investing. That’s why it’s a good idea to consult with a financial advisor to help you decide what's right for you.
Yes, RILAs still carry market risk, but the protection features limit how much loss you take at the end of the strategy term. A buffer absorbs a set amount of loss before you are affected, while a floor caps the maximum loss you can experience.
Many RILAs have no explicit annual fee, but the cost shows up indirectly through the structure: caps, participation rates, and surrender charges/withdrawal adjustments. In plain English, you pay for the downside protection by giving up some upside.
At the end of the term, the insurer measures the index performance and credits the contract based on the strategy rules. A strategy term is the full measurement period, while a crediting term is the period over which gains are locked in; in some designs those are the same (called “point-to-point”), but in multi-year strategies they can differ. For example, if the strategy term is three years the mechanisms for limiting losses and crediting gains will stay in place for that entire period, but a 1-year crediting term would lock in gains or losses at the end of each year.
A fixed index annuity (FIA) offers potential growth tied to a particular stock market index, such as the S&P 500®, with a minimum guaranteed interest rate so that even in a down year, you are protected from market losses. The trade-off? When the market performs well, your potential gains are also limited.
A RILA is also tied to a stock market index or indices, but instead of a guaranteed interest rate, you select a buffer level that defines how much you are willing to lose should the index go down. And while a RILA also caps the amount you can gain if the index goes up, the caps tend to be higher than that of a FIA. In other words, with a RILA you take on more investment risks compared to a FIA, but you also get the potential for higher returns. It’s important to note that you are not invested directly in an index in either a FIA or a RILA, just tracking the performance.
A RILA offers index-linked growth with limited downside protection, while a variable annuity gives you more direct market exposure and usually no built-in downside buffer.
