Should You Buy a RILA at 60? Buffers, Caps, and the Hidden Costs of Registered Index-Linked Annuities (2026)
Last reviewed: September 2026 · Educational, not individual advice
A registered index-linked annuity (RILA) gives you part of a stock index's gain in exchange for absorbing part of its loss, with no explicit annual fee on most contracts. The cost is real anyway: it is the cap on your upside, the dividends you never receive, a surrender period of typically six years, and gains taxed as ordinary income. For some 60-year-olds that trade is worth it; for many it is not.
If you are a pre-retiree in your late 50s or 60s who has been shown a RILA illustration, this guide is for you. RILAs are the fastest-growing product in the annuity market, and the pitch, "market upside with downside protection," lands hardest with people a few years from retirement who just watched their 401(k) or TSP swing. I will explain what a RILA is, walk through the math with live September 2026 caps, list the costs that do not appear on the fee page, compare it with a buffer ETF and a fixed index annuity, and give you a plain list of who it may fit and who should walk away. I am a CFA® charterholder and a fiduciary advisor; our firm can use these products, so read this as a practitioner's view, not a sales page.
Educational only, not investment advice. Guarantees are subject to the claims-paying ability of the issuing insurer. Read the prospectus before buying anything.
RILA sales are setting records, which is why you are hearing about them
LIMRA's figures explain the marketing pressure. RILA sales were $79.5 billion in 2025, up 20%, the eleventh straight year of growth. The first half of 2026 brought $44.4 billion, up 21%, with the second quarter of 2026 the largest quarter on record at $23.3 billion. LIMRA expects RILAs to pass $85 billion in 2026 and to keep growing through 2028, largely at the expense of fixed index annuities, whose caps look worse by comparison. Roughly 45% of all U.S. annuity sales are now indexed products of one kind or another.
Popularity is not evidence that a product fits you. It is evidence that carriers can price it profitably and that it sells well after a volatile year.
What exactly is a RILA?
A RILA is a tax-deferred annuity contract with an insurance company whose credited return is tied to an index (most often the S&P 500 price index) over a set term, subject to two limits: a buffer or floor that limits your loss, and a cap or participation rate that limits your gain. Unlike a fixed index annuity, a RILA does not guarantee your principal. You can lose money.
"Registered" means the contract is registered with the SEC as a security, because you bear investment risk. In practice that means a prospectus, sales rules for securities (the person selling it needs a securities license, and the SEC's Rule 156 on misleading sales literature applies), and, since May 1, 2026, a standardized registration form (Form N-4) that lets carriers publish a short summary prospectus with a Key Information Table. The SEC's own 2023 investor testing found that buyers routinely misunderstood the words "buffer," "interim value," and "investment term," which is a good reason to read the next section slowly.
The four moving parts, and the one nobody explains
| Term | What it means | Typical 2026 choices |
|---|---|---|
| Buffer | The insurer absorbs the first X% of an index loss; you absorb everything beyond it. A 20% buffer means a 35% index drop costs you 15%. | 10%, 15%, 20%, 30%; some carriers offer 100% on select terms with a low cap |
| Floor | The opposite: you absorb the first X% of loss and the insurer absorbs the rest. A 10% floor limits your loss to 10%. | 0% to 20%; less common, lower caps |
| Cap | The maximum index gain credited for the term, regardless of how far the index rises. | 1-year, S&P 500, 10% buffer: roughly 15%–18% with no fee (Transamerica 15.5%, MassMutual Ascend 17%, Athene 17% in September 2026); about 25% if you pay a 0.95% annual strategy fee |
| Participation rate | The share of the index gain credited, sometimes above 100%, used instead of or with a cap on longer terms. | 6-year, 20% buffer: cumulative caps of roughly 80%–105%, or participation rates of 100%–140%, occasionally uncapped |
| Term (crediting period) | How long until the buffer and cap are applied and your gain or loss is locked in. | 1, 3, or 6 years; you choose new terms and rates at each renewal |
| Index | What the return is measured against. Almost always a price index, which excludes dividends. | S&P 500, Nasdaq-100, Russell 2000, MSCI EAFE, and custom volatility-controlled indices |
| Interim value | What your contract is worth if you withdraw, die, or exchange before the term ends. It is a formula based on the carrier's hedging costs, not your index return, and it can be lower than the buffer implies. | Every contract; read the interim-value section of the prospectus |
The interim value is the part that surprises people. The buffer protects you only at the end of the term. Leave early, for any reason including a death claim on some contracts, and you get the interim value, which can reflect a loss larger than the buffer would have allowed.
How a RILA works: $100,000, a 20% buffer, a 15% cap
Take a six-year term with a 15% annual cap applied yearly (a simplification; many six-year contracts credit once at the end). Same $100,000, three markets:
| S&P 500 price return | RILA credited return | RILA value | Index fund value (with dividends) |
|---|---|---|---|
| +25% | +15% (capped) | $115,000 | $126,100 |
| +8% | +8% | $108,000 | $109,100 |
| −12% | 0% (inside the buffer) | $100,000 | $89,100 |
| −35% | −15% (beyond the buffer) | $85,000 | $66,100 |
That is the whole product in one table. You give up the top of the good years and the dividend every year; you are spared the first 20% of the bad years. Whether that is a good trade depends on how often the market falls more than a little and less than a lot, which over one-year periods is not very often, and on what you would have done in the bad year without the buffer, which for many investors is sell.
Fees a RILA may charge
Most RILAs have no mortality-and-expense charge, no fund expenses, and no annual contract fee. That is true and it is the main selling point. The fees that can exist:
| Charge | Typical range | When it applies |
|---|---|---|
| Surrender charge | Starts at 6%–8% and declines to zero over 3 to 7 years; six-year schedules (for example 8/8/7/6/5/4) are the most common | Withdrawals above the free amount, usually 10% a year, during the surrender period |
| Interim-value adjustment | Can be positive or negative; not capped by the buffer | Any withdrawal, exchange, or death benefit before the term ends |
| Optional strategy fee | About 0.95%–1.25% a year | Only on "fee" versions that buy a higher cap or participation rate |
| Optional income or death-benefit rider | 0.5%–1.5% a year | Only if you add a guaranteed lifetime withdrawal benefit or enhanced death benefit |
| Contract or administrative fee | $0–$50 a year | Rare; some carriers waive above a minimum balance |
If none of those apply to you, the RILA is not free. It is paid for in the next section.
The five hidden costs of a RILA
1. The cap is the fee. In a year when the S&P 500 returns 25%, a 15% cap costs you 10 points. Over the 30 years through 2025 the index posted a price gain above 15% in roughly two of every five years, so the cap binds often. Carriers set caps from option prices and interest rates; the cap is the insurer's margin plus the cost of your buffer, expressed as forgone upside.
2. No dividends. RILAs credit the price index. The S&P 500 dividend yield is about 1.1% as of September 2026, a record low, which makes this cost smaller than it was, but it compounds: 1.1% a year for six years is roughly 6.8% of missed return.
3. Illiquidity. A six-year surrender schedule plus the interim-value formula means money in a RILA is not emergency money, not rebalancing money, and not "I found something better" money. Ten percent a year is available without surrender charge; the interim-value adjustment can still apply.
4. Reset risk. At the end of a term the carrier sets new caps from then-current option and rate markets. Caps in 2026 are high because interest rates are high. If rates fall, the cap you renew into could be several points lower, and leaving at that point restarts a surrender clock at another carrier.
5. Taxes. In a taxable (non-qualified) account, every dollar of gain comes out as ordinary income, last-in-first-out, with a 10% federal penalty on gains withdrawn before 59½. Stocks and ETFs held over a year are taxed at long-term capital gains rates. In 2026 the 15% capital gains rate applies up to $98,900 of taxable income for a joint return and 20% above $613,700; the 3.8% net investment income tax applies above $250,000 of modified AGI to both annuity gains and capital gains, so it does not change the comparison.
| Where the gain sits | Rate | Federal tax |
|---|---|---|
| Index fund, held over one year, 15% bracket | 15% | $7,500 |
| Index fund, held over one year, 20% bracket | 20% | $10,000 |
| RILA withdrawal, 24% ordinary bracket | 24% | $12,000 |
| RILA withdrawal, 37% ordinary bracket | 37% | $18,500 |
Two more tax points matter at 60. First, no step-up in basis: an index fund's unrealized gain disappears for your heirs at death; an annuity's gain is income in respect of a decedent and your children pay ordinary income tax on all of it. Second, no tax-loss harvesting: a loss inside a RILA cannot offset gains elsewhere. Both problems vanish if the RILA is held inside an IRA, which is where most of them belong; the tax deferral is then redundant, so you are buying the buffer alone.
RILA vs. buffer ETF vs. fixed index annuity
Since 2018, exchange-traded funds have offered the same buffer-and-cap payoff without the insurance wrapper. That comparison is the one a RILA illustration never shows.
| Feature | RILA | Buffer ETF (defined-outcome ETF) | Fixed index annuity (FIA) |
|---|---|---|---|
| Downside | Buffer (first 10%–30% absorbed) or floor | Buffer (typically 9%, 15%, or 30% absorbed) | 0% floor: principal guaranteed by the insurer |
| Upside | Cap about 15%–18% on 1-year/10%-buffer terms | Cap typically 12%–18% on 1-year/9%–15% buffers, reset annually | Cap typically 7%–11%, or a participation rate |
| Explicit cost | Usually none; optional 0.95%+ strategy fee | Expense ratio about 0.75%–0.79% | Usually none; rider fees if added |
| Liquidity | Surrender charges 3–7 years; interim value before term end | Daily on an exchange; the buffer applies only if held for the full outcome period | Surrender charges 5–10 years |
| Taxation (taxable account) | Tax-deferred; gains ordinary income; 10% penalty before 59½; no step-up | Capital gains rates; loss harvesting available; step-up at death | Same as RILA |
| Dividends | Not credited | Not credited (options-based) | Not credited |
| Guarantee | Insurer's claims-paying ability | None; outcomes depend on the option positions | Insurer's claims-paying ability |
| Best suited to | Tax-deferred money that will stay put for the term, when the RILA cap beats the ETF cap | Taxable money, or anyone who wants the option to change course | Money that must not lose principal, or an income-rider buyer (FIA income riders are usually stronger than RILA versions) |
In an IRA, the tax column disappears and the comparison comes down to cap versus cap, liquidity, and the carrier guarantee. In a taxable account the ETF's tax treatment and liquidity usually win unless the RILA's cap is materially higher.
What are the downsides of a RILA?
Pulled together, because this is the question people actually search:
- You can lose money; the buffer is partial.
- Your gain is capped and excludes dividends.
- Money is locked up for the term, with surrender charges and an interim-value formula that can cut the buffer's protection if you leave early.
- Caps reset at the carrier's discretion at each renewal.
- Gains are ordinary income, with no step-up for heirs and no loss harvesting, if held outside an IRA.
- The product is complex enough that the SEC found buyers misunderstood its core terms.
- It is sold on commission, typically several percent of the deposit, paid by the carrier and recovered through the cap and surrender schedule, so the person recommending it has an incentive.
Who a RILA may fit, and who should walk away
A RILA can make sense when all of these are true:
- The money is in an IRA or will not be needed for at least the length of the term plus the surrender period.
- You have a history of selling in downturns and would rather give up upside than repeat it. The buffer is, honestly, behavioral insurance.
- You have compared the RILA's cap with a buffer ETF's cap and the RILA's is better by enough to pay for the lost liquidity.
- You have read the interim-value section and the renewal terms and can explain both.
A RILA is probably not the answer when:
- You might need the money within six years, including for long-term care or a home move.
- You already have enough guaranteed income (FERS annuity, pension, Social Security) to cover essentials; then the question is whether you need downside protection on the rest at all, and a lower equity allocation is simpler and free.
- The money is in a taxable account and you are in a high bracket or expect to leave it to children.
- The pitch is about the income rider; a fixed index annuity or a single-premium immediate annuity usually does that job better.
- You cannot say what "interim value" means after reading the prospectus.
One hypothetical
Sam and Dan are composites, not clients: 59 and 62, Montgomery County, Sam retiring from NIH in about two years with a FERS annuity and a $900,000 TSP. A representative proposed moving $300,000 of the TSP into a six-year RILA with a 20% buffer. We ran the alternatives: leave it in the TSP's L Income or C/G mix; buy a buffer ETF ladder inside a rollover IRA; or buy the RILA (the rollover decision itself has its own trade-offs). Because the money is qualified, tax is a wash. The RILA's six-year cap was higher than the ETF's; the ETF was liquid and could be rebalanced against the rest of the plan; the TSP option cost nothing. Sam's FERS annuity plus Social Security already covered the couple's essential spending, which meant the $300,000 did not need a buffer, it needed an allocation. They kept it in the TSP with a lower equity weight. A different couple, with no pension and a record of panic-selling, might reasonably pick the RILA. The point is the process, not the product.
If you have a RILA illustration on the table, we will read the prospectus with you and run it against the alternatives, including the option of doing nothing, as part of our investment management service. Book a call. For the broader map of annuity types, start with our guide to fixed, variable, and indexed annuities, and for the withdrawal side, retirement income without a single "magic" investment.
How to read the new RILA summary prospectus
Since May 1, 2026 every RILA is registered on the SEC's Form N-4, and most carriers now offer a short summary prospectus. Read these four items before anything else:
- Key Information Table. Fees, risks, restrictions, and conflicts in one place, including whether the carrier can change caps and buffers at renewal.
- Interim value. The formula and an example showing what you would get if you left mid-term after a market drop.
- Surrender schedule and free-withdrawal amount. Confirm the years and the percentages; ask whether the death benefit is subject to the interim value.
- Current rate sheet. Caps and participation rates are not in the prospectus; they are on a separate, dated sheet and change monthly. Get the one for your purchase date in writing.
FAQ: RILAs at retirement
What are the downsides of a RILA? Partial protection (you lose beyond the buffer), capped gains without dividends, surrender charges of typically six years, an interim-value formula that can reduce the buffer if you exit early, caps that reset at renewal, ordinary-income tax with no step-up for heirs outside an IRA, and commission-driven sales. The SEC found buyers often misunderstood the core terms.
Who should buy a RILA? Someone with tax-deferred money they will not touch for the full term and surrender period, who would otherwise sell in a downturn, who has compared the cap with a buffer ETF's cap, and who can explain the interim value and renewal terms. Someone with enough guaranteed income to cover essentials usually does not need one.
Can I lose all my money in a RILA? Not from market movement alone with a buffer: a 20% buffer on a 50% index crash leaves you with a 30% loss, not zero. The loss can exceed the buffer's implied limit if you withdraw mid-term because of the interim-value adjustment. Your contract also depends on the insurer's ability to pay, so carrier strength matters.
How are RILAs taxed compared to stocks? In a taxable account, RILA gains are tax-deferred but come out as ordinary income (up to 37% federal in 2026, plus state), with a 10% penalty before 59½ and no step-up in basis at death. Stocks held over a year are taxed at 15% or 20% capital gains rates and get a step-up. Inside an IRA the difference disappears.
At what age does an annuity not make sense? An age is the wrong test. A RILA stops making sense when you may need the money within the surrender period, when guaranteed income already covers your essentials, or when the funds are taxable and headed to heirs. Past about 75, six-year lockups and the death-benefit interim value deserve extra scrutiny.
Sources
- LIMRA, Final 2025 U.S. annuity sales, March 23, 2026, Second quarter 2026 sales, July 27, 2026, and 2026 annuity sales outlook
- SEC, Registration for index-linked annuities (Form N-4 amendments), July 2024; RILA investor testing report, September 2023; Investor.gov, Registered index-linked annuity
- FINRA, The complicated risks and rewards of indexed annuities
- IRS, Publication 575: Pension and annuity income; Tax Foundation, 2026 federal tax brackets and capital gains thresholds
- Carrier rate sheets as of September 9, 2026 via AnnuityRatesHQ (Transamerica Structured Index Advantage, MassMutual Ascend Index Summit 6, Athene Amplify 2.0); S&P 500 dividend yield, multpl.com
Written by Danni Shen, CFA®, Co-Founder & Chief Investment Officer of Allset Wealth. Allset Wealth is a financial planning firm in Hunt Valley and North Bethesda, Maryland, serving federal employees, tech employees, and business owners across Maryland, DC, and Virginia.
This article is for educational and informational purposes only and does not constitute investment, tax, legal, or insurance advice. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company. Registered index-linked annuities are sold by prospectus; read it carefully before investing. Indexes are unmanaged and cannot be invested in directly. Hypothetical examples are illustrative and do not represent any specific product. Sam and Dan are hypothetical composites, not clients. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities and investment advisory services offered through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Allset Wealth.
