Here’s a rundown on the changes of keenest interest to insurance advisors...
By Linda Koco
An annuity agency executive was reviewing the average age of his firm’s fixed annuity buyers when he noticed a shift. There was a bump-up in buyers who were under age 50 when they bought their policies, Ken Nuss said.
For instance, fixed indexannuity (FIA) buyers in the “under-age-50” category represented 26 percent of his firm’s total fixed annuity buyers for the 12-month period ending Aug. 31, 2014, said the chief executive officer and founder of AnnuityAdvantage. The agency is a 15-year-old Medford, Ore., firm that’s licensed to sell fixed annuities nationwide.
The 2014 figure is up from 19 percent in the 12-month period ending Aug. 31, 2013, Nuss said in an interview. The under-age-50 category includes people not only in their 40s but also in their 30s and younger.
The trend held when considering only the 40 to 49 age group, too, although not by as wide a margin. FIA buyers in this age bracket at his agency represented 16 percent of the firm’s total annuity buyers for the12-month period ending Aug. 31, 2014, he said. That’s up from 11 percent in the 12-month period ending Aug. 31, 2013.
A meaningful trend
The increase in under-age-50-buyers is “not earth-shattering,” he allowed. However, he considers it to be a “meaningful trend,” given that the typical fixed annuity buyers are commonly considered to be retirement-minded customers in their late 50s and on through the 60s and 70s.
Nationally, the average issues age of FIA buyers in second quarter 2014 was 63, according to Wink Inc., an indexed product resource.
Most advisors don’t even think of offering a fixed annuity to people under age 50, Nuss said.
This reflects a long-held belief that customers under age 50 are not close enough to retirement to develop much interest in fixed annuities and their guaranteed income capabilities. That is an attitude of some under-50 consumers too, Nuss said, noting that they believe they are “too young” to buy an annuity.
In addition, some advisors just don’t want to sell annuities to people who might face a tax penalty if they withdraw their annuity funds before age 59.5.
“My take is, those are antiquated ideas,” Nuss said. Younger people in their 40s and 30s, even those in their 20s, are aware of the risk of outliving their retirement funds, he said. As a result, they are getting interested in contributing to annuities in addition to their retirement plans at work.
As for the age 59.5 penalty concerns, the same can be said for individual retirement accounts, but younger adults still purchase IRAs, he said.
They find the features appealing
Nuss said his firm did not conduct any special marketing or product campaign geared to the younger age group during the two-year period indicated in his numbers.
“In addition, I don’t think the agents were targeting younger people in any way. Instead, I think the fixed annuity’s features appealed to these buyers and so, when they heard about them, particularly about the income riders on FIAs, they learned more and then bought the policies.”
Consumers hear about the products through advertising, radio, seminars, Internet and other marketing approaches, he said. His firm uses direct marketing, so the agency gets calls in response to the promotions.
The younger purchasers tend to be people who have exhausted the maximum contributions to their 401(k) or other defined contribution retirement plans, Nuss said. They are using the fixed annuity to supplement their retirement savings.
Some younger adults do buy variable annuities for this purpose, Nuss allowed. If they have a 20-year time horizon and if they markets perform well, they could build a nice nest egg that way. His firm does not sell variable annuities so he said he doesn’t have data on trends among under-50 buyers of those products.
The sleep-at-night factor
His experience is that fixed annuities tend to appeal to under-50 adults who have “sleep-at-night issues” related to investing in the stock market. With their non-retirement plan money, these risk-averse customers want the guarantees of fixed annuities, he said.
A lot of the younger buyers tend to buy fixed annuities on a flexible-premium basis, and the average buyer tends to be middle-market, he noted. “On average, their premiums tend to be smaller than premiums of buyers in the senior population.”
The agency sells a variety of fixed annuities, Nuss said. These include not only FIAs but also traditional annuities, multi-year guaranteed annuities, single premium deferred annuities, deferred income annuities and immediate income annuities.
The bump-up among under-50 buyers is not as great when considering the buyer trend for all fixed annuity buyers (i.e., not just those buying FIAs) at his firm. However, the younger-buyer trend still made itself apparent, he said.
For instance, all fixed annuity buyers under the age of 50 represented 9 percent of total buyers (all age groups) in the 12-month period ending Aug. 31, 2014. That’s up a bit from 7 percent in the 12-month period ending Aug. 31, 2013. As for all fixed annuity buyers between ages 40 and 49, they represented 7 percent of total buyers in the 12-month period ending Aug. 31, 2014, up from 5 percent in the 12-month period ending Aug. 31, 2013.
“Adults age 50 and up are still the larger part of our business,” he said, so younger buyers are not replacing the more senior group but are rather adding to the more established market. But based on what his firm is experiencing, “the trend is going to the younger people,” he said.
The message that Nuss suggested agents and advisors deliver to these consumers is that “it's never too soon to add an annuity to a retirement plan portfolio. Most annuities provide better payouts at an anticipated retirement age the earlier they're purchased.”
Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at firstname.lastname@example.org.
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