One of the most popular annuity innovations over the past two decades, the registered index-linked annuity (RILA), has been a top seller almost since it was introduced to the market in 2010. Last year, these products saw sales of more than $47 billion, an increase of 15% from the prior year and a new record high, according to Windsor, Conn.-based data tracker LIMRA. And in the first half of this year, their sales jumped another 41% year-over-year to nearly $31 billion. LIMRA anticipates they are on track to exceed $50 billion in sales this year.

But with equity performance at historic highs, and interest-rate cuts likely, how long can the RILA wave continue? RILAs are “buffered” variable annuities, pegged to a basket of stocks, such as the S&P 500, but constructed to cap upside performance at a predetermined percentage and limit downside risk, also at a preset percentage.

“They can provide greater opportunity for upside growth potential relative to most fixed annuities or fixed-income strategies, while also offering different buffer protection options that investors and their advisors can use to help manage for market volatility and downside risk,” says Scott Gaul, head of individual retirement strategies at Prudential in Newark, N.J.

Annuity providers like Prudential are certainly bullish on the category. They keep coming out with new variations to entice new investors, such as enhancements that let clients adjust cap and floor levels, providing RILA owners with the flexibility to “adjust protected growth and lifetime income levels as their needs and goals change over time,” says Gaul.

That helps retirees feel a sense of control over their financial futures, he adds.

RILAs are similar to another popular type of annuity, the fixed-index annuity, which also caps upside potential in exchange for limiting downside risk. Fixed-index annuities (which the industry also calls “FIAs”) are linked to specific market indexes, with preset payout calculations separate from index performance. While RILAs are registered securities products, with fluctuating returns, fixed-index annuities are fixed insurance products. That means the RILAs can enjoy higher returns than fixed-indexed annuities, but also assume more risks.

David Blanchett, the head of retirement research and portfolio manager for PGIM DC Solutions, a unit of Prudential Financial in Lexington, Ky., calls RILAs the next step in the evolution of fixed-index annuities, which he says provide strong downside protection but relatively limited upside. “RILAs allow investors and advisors to allocate to strategies that span a much wider risk/return spectrum,” he says.

He says that RILAs are not only taking market share from other annuities but also, because of their flexibility, drawing in customers who might otherwise reject annuities altogether. “RILAs have the opportunity to attract a new segment of investors to annuities,” Blanchett says.

To be sure, registered index-linked annuities aren’t right for every client. But experts insist they can be a key ingredient in sound retirement planning. As equity-based investment products, they would be part of a client’s equities allocation, advisors say. Fixed annuities, on the other hand, would be in the same category as CDs and bonds.

The profile of the ideal client for a RILA is specific, advisors say, yet it could apply to a lot of people—namely retirees and near-retirees who are worried that the income from their assets won’t keep up with inflation. They may also be risk-averse and acutely concerned about major market corrections, according to Frank O’Connor, vice president of research at the Insured Retirement Institute in Washington, D.C.

“RILAs can give them some protection against market losses and some potential for growth,” he explains. “They allow investors to continue to participate in future potential growth in stocks while protecting the significant gains they’ve made.”

Indeed, advisors say that mounting market jitters, contrasted with the income certainty of annuities, has been a strong driver of all annuity sales. According to LIMRA data, the sales figures for all such products last year surged 23% year-over-year to a record $385.4 billion. The lion’s share of that came from $286.6 billion in sales of fixed annuities (those products, which have directly benefited from higher interest rates, also set a record).

“Rising interest rates have made annuities very attractive to a larger group of investors,” Bryan Hodgens, head of research at LIMRA, said in a statement when the figures were announced last March. Rising interest rates push annuity payout and crediting rates higher, but of course they also make the yield on other fixed-income products higher too.

Another factor in the growing popularity of annuities in general is the aging population, analysts say. “In addition to favorable interest rates, demographics have also played a role in the surge of fixed-rate deferred sales,” Hodgens said in his March statement, pointing to the ballooning number of Americans at retirement age.

That’s what makes the popularity of RILAs, which provide less certainty than fixed annuities, seem surprising to some market watchers. To date, they are the only category of variable annuities to keep posting quarterly sales records. But experts say the popularity of RILAs and fixed annuities is not a mixed message.

“The extra layer of protection that RILA products provide has made them more appealing for investors” than traditional variable annuities, says Teddy Panaitisor, assistant research director at LIMRA in South Windsor, Conn. The choice between fixed-annuity products and RILAs is about how wary of risk an investor is, he says. It also depends on the purchaser’s overall financial goals.

RILA buyers may be somewhat risk-averse, but they’re also more aggressive than fixed-annuity buyers, say industry experts—most are not as cautious as older retirees. “RILA buyers are among the youngest annuity buyers, with an average age around 61,” Panaitisor observes. “These are people who are still looking for accumulation opportunity to supplement their retirement nest egg.”

This means RILA owners might be around for a relatively long time, something the advisors they turn to might keep in mind. LIMRA expects RILA sales to keep growing at least through 2026, Panaitisor says, regardless of a projected change in interest rates. As proof of that momentum, he notes that the number of carriers of RILA products has leapt by some two-thirds over the past four years. “Currently, there are roughly 20 carriers in this space. In 2020, there were 12 carriers.”

At one of them, Jackson National Life Distributors in Franklin, Tenn., senior vice president of product management Matt Lemieux puts the industry’s bullish view this way: “Annuity products in general are sensitive to interest rates, so any meaningful decline will most likely impact all annuity product lines. But what won’t change are the broad mix of investor needs and the insurance industry’s continual pursuit of innovation to meet them.”

The ability of policy buyers to pick and choose levels of protection and degrees of market exposure is what makes RILAs attractive to investors across a broad range of risk tolerance and investment horizons, he emphasizes.

But the flexibility and customization also make them appealing to advisors, he adds. “The relative simplicity of the product design also allows financial professionals to more easily assess and position the potential value to their clients.”