Gen-Y May Have a Growing Yen for Annuities
Annuities are apparently garnering more attention from Generation Y adults than most professionals in the business have come to expect.
Generation Y refers to people born in years 1980 to1995, making their current age range 17 to 32.
The most recent edition of the IRI Fact Book points out that Gen-Y ownership of one kind of annuity — the indexed annuity — has “significantly increased since 2007, when it was at 8 percent.”
A 2011 chart appearing in the Fact Book indicates that 14 percent of Gen-Y owned indexed annuities that year. The chart is from Cogent Research’s 2011 Investor Brandscape study.
The Insured Retirement Institute (IRI), the Washington trade group that publishes the Fact Book, says a similar trend has occurred with fixed annuities. However, in the case of fixed annuities, the increased ownership is “not as dramatic.” The 2011 Cogent chart shows that only 6 percent of Gen-Y adults owned fixed annuities that year (and just 5 percent owned variable annuities).
By comparison, the annuity ownership profile of the Silent Generation, born between 1925 and 1945, is much larger. Twenty-seven percent of the older folks own indexed annuities, according to Cogent’s 2011 figures. Even more own fixed annuities (33 percent) and variable annuities (35 percent).
The Silent-Gen numbers come as no surprise. America’s older adults are widely recognized to be the nation’s largest annuity ownership group, as measured by age.
But the Gen Y ownership numbers are another story. Annuity industry thinking has been that this market is not a strong one for annuities. After all, annuities are retirement products and young adults are many decades away from retirement.
In the annuity ballpark
But, while young adults are not exactly lining up at local outlets to buy annuities in the way that they queue up for hot new technologies, the ownership numbers indicate certain Gen-Ys are definitely in the annuity ballpark. It’s “against all odds,” as the saying goes.
Perhaps this turn of the dial is not a surprising as it seems at first glance, however. A number of surveys have come out this year which reveal Gen-Y’s growing interest in savings and financial security.
For instance, 95 percent of workers younger than 30 told researchers for The Hartford that they find it “very” or “somewhat” appealing to be able to turn at least a portion of their retirement savings into a guaranteed income. That compares to 90 percent of those ages 30-39, 89 percent of ages 40-49, 88 percent of ages 50-59, and 77 percent of age 60 and older, the Simsbury, Conn. company says.
Gen-Y is not just talking about revving up their savings. They are acting. For example, in first quarter 2012, a MassMutual study found that defined contribution plan savings rates for Gen-Y were increasing at an accelerated rate.
The average deferral rates for this age group (3.58 percent) continue to be lower than that for older participants (7.18 percent), the Springfield, Mass. company allows. But the group’s savings levels are moving up.
For example, plan participants ages 29 and under increased their savings levels by 2.29 percent versus those age 60 and up, who increased their savings level by only 0.42 percent, MassMutual says.
At the same time, the stock market appears to be less enticing to Gen-Y than to older folks. For instance, In May, researchers for Charles Schwab & Co., Inc., San Francisco, reported that 29 percent of Americans, ages 18-34, were intending to pull money out of the stock market in the next six months. By comparison, only 11 percent of older Americans indicated the same.
So, what will these younger adults do with their money? They said would most likely to “sit on the sidelines” and move assets into more stable investments such as money markets and savings accounts, the researchers say. (No, there was no mention of going into annuities. But perhaps that might change.)
Even the more well-heeled Gen-Y adults appear to be savings oriented. In April 2011, a Bank of America Merrill Edge Report noted that mass affluent Gen-Ys — those with $50,000 to $250,000 in investable assets — are “much more worried” about their financial future than older generations.
How worried are they?
The Gen-Ys who Merrill surveyed named their top concerns as: ensuring retirement assets last throughout their lifetime (93 percent), financially supporting their family, including parents or adult children (92 percent), rising cost of health care (also 92 percent) and caring for an aging parent (79 percent).
Those responses sound as if the survey respondents were middle-aged boomers, who have often been quoted as fretting about the very same issues.
But it bears repeating: The responses were from Gen-Ys, and the financial-related worries they expressed appear to be widespread, with over 90 percent giving voice to the concerns.
Considering Gen-Y’s financial worries, it is not surprising to learn that 93 percent of this group told the Merrill researchers that tracking and managing money has become a top priority. What’s more, 51 percent said they have saved more over the last year.
The great consistency in the Gen-Y findings among various studies should help explain the increased annuity ownership among Gen-Y adults that the IRI Fact Book has highlighted.
Certainly, a savings-minded orientation is not the only factor that accounts for the uptick in annuity ownership in this age group. Personal circumstance always plays a role. Still, the correlation between savings-orientation and annuity ownership seems fairly self-evident.
Carrie Schwab-Pomerantz, a senior vice president at Charles Schwab and a certified financial planner, puts some perspective on Gen-Y thinking in a statement accompanying rollout of the Schwab study results. “Younger Americans are seeming to be more risk averse than ever before,” she said.
“While their time horizon for retirement should be conducive to staying invested and maintaining a more moderate or even aggressive risk level, we are seeing the younger generation sway to be more conservative given what they have witnessed in the market in recent years.”</p>
She wasn’t talking about annuities. But it’s a good guess that the annuity industry will get the message, if it hasn’t already.
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