How annuities can help younger generations secure their future

As younger generations, particularly millennials and Gen Z, look toward their future, the retirement landscape presents challenges. Traditional pillars of retirement stability, such as Social Security and pensions, may be less reliable or available down the road.  For members of these rising generations, a key aspect of retirement planning is diversification.

Nationwide Retirement Institute’s 2023 Social Security Survey showed that 45% of Gen Z and 39% of millennials don’t believe Social Security will be there when they retire.¹ This lack of belief is not unfounded, as 2024 research shows 79% agree — America faces a retirement security crisis.²

While 401(k) plans are a primary vehicle for retirement savings, they focus on asset accumulation, as does most of the recommendations around preparing for retirement. This can leave individuals without clear guidance on converting those assets into a steady income stream. It is important to know when to convert to these funds to help create a smooth road into retirement.

“Where defined contribution plans like a 401(k) fall short is that there’s no prescription for what to do with those accumulated assets. And you don’t live on assets; you live on income,” said Lesley Mann, SVP/CMO, GBU Life.

The gradual disappearance of traditional pensions has further exacerbated the problem, leaving younger generations with fewer options to secure their financial well-being in retirement. 

Younger generations face new challenges

Younger generations have unique characteristics and face new challenges that shape their approach to retirement planning. For instance, Gen Z members are on track to become the most educated in history, fueled by a desire to acquire new skills and secure a better future.³ However, they must navigate an overwhelming amount of information from various sources, not all of which is reliable or accurate.

The financial pressure of paying down student loan debt while trying to save for retirement, a rising cost of living, and uncertainties younger generations have encountered growing up — such as a recession, a pandemic, climate change, and social unrest — can lead to decisions that often times are better made with professional guidance.

Members of Gen Z have developed a pragmatic and cautious approach to finances, influenced by witnessing the financial challenges their Gen X parents faced during periods of economic instability. This has led to heightened financial stress and concerns about the future economy, with a significant portion of Gen Z reporting constant worry about their financial well-being. Consequently, younger generations prioritize stability and security. 

Despite being credited as the generation that saves the most, according to Vanguard,⁴ roughly 23% of Gen Z don’t expect to ever be able to retire, per a recent McKinsey & Company study.⁵ This dichotomy highlights the complex relationship between saving habits and retirement expectations among younger generations.

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Millennials and Gen Z are often characterized as “job hoppers,” driven by a quest for personal and professional growth. While this may lead to increased income and satisfaction, it can result in fragmented retirement savings and difficulty maintaining consistent contributions to traditional retirement plans. The lack of loyalty-inspiring benefits, such as pensions, reduces the incentive for younger generations to stay with a single employer for an extended period. 

The rise of the gig economy and the increasing prevalence of nontraditional employment further complicate retirement planning for younger generations. Limited access to employer-sponsored retirement benefits makes it challenging to plan for long-term financial security if traditional retirement plans are perceived as the only option. However, those in the annuity industry should recognize that alternative solutions exist to help millennials and Gen Z secure their financial future.

Personal savings may not be enough

Personal savings play a crucial role in preparing for retirement, and the U.S. Bureau of Economic Analysis (BEA) tracks personal savings rates to gauge the population’s savings awareness. While these rates can vary, they indicate a general trend toward increased savings awareness, but simply saving money in a bank account (or under a mattress) is not sufficient to ensure a comfortable retirement. 

Larry Fink, CEO of BlackRock, recently highlighted the disparity between the effort spent on increasing life expectancy and the effort dedicated to helping people afford those extra years. He stated, “As a society, we focus a tremendous amount of energy helping people live longer lives, but not even a fraction of that effort is spent helping people afford those extra years.”⁶ With the potential for extended life spans due to medical breakthroughs, the need for robust retirement solutions becomes even more pressing.

The critical question that most Americans struggle to answer is, “How much retirement income will I have?” While employer-sponsored 401(k), TSP, 403(b), or 457 plans are excellent vehicles for saving, they fall short when it comes to generating reliable income you can’t outlive.

Position a potential solution to millennials and Gen Z

In light of these challenges, individuals must take personal responsibility for their retirement security. Relying solely on employer-sponsored plans or government programs may not provide the necessary level of financial stability in retirement. Exploring personal, private, and tax-advantaged options can help individuals create a more secure and comfortable future. 

Annuities serve as a compelling solution, offering a systematic approach to wealth-building for retirement, with the added benefit of guaranteed income for life — similar to the nearly extinct defined benefit plans. By incorporating annuities into their retirement planning, younger generations can create a more comprehensive and resilient strategy for financial security. 

Millennials and Gen Z want to plan ahead and have some measure of security in their retirement, which is why a flexible premium fixed indexed annuity can be a good fit for them. The younger generations are often conservative with their money and may not trust big banks and institutions. A fixed indexed annuity, where they cannot lose money, can provide them with the security and peace of mind they’re looking for.

Annuities can be marketed to younger generations who worry about running out of money in the future. Studies have shown that people with annuities tend to be happier in retirement. Research indicates annuity owners are more likely to be satisfied with and confident about their retirement outlook compared to non-owners. In fact, 96% of annuity owners are confident they’ll be able to retire at their planned retirement age, while only 68% of non-owners share this confidence.⁷

Targeting younger demographics to grow your business 

Financial professionals may overlook younger generations as annuity prospects, focusing on “bigger fish” with larger amounts to invest. However, millennials and younger cohorts make up over 50% of the population,⁸ with millennials expected to represent 75% of the workforce by 2025⁹ and Gen Z poised to replace boomers. They are also in a position to gain more economic power with the Great Wealth Transfer and as they progress in their careers. So, ignoring this demographic would be a missed opportunity for financial professionals.

While younger individuals may not have large sums to invest initially, annuities allow them to start small and keep contributing every year, with agents earning commissions on each contribution. By starting to work with the millennial and Gen Z generations now, financial professionals can establish long-term relationships and grow their business as these individuals’ wealth accumulates. 

When positioning annuities to younger generations, it’s essential to focus on the benefits that resonate with their unique needs and concerns. Emphasizing features like market-linked crediting, minimized downside risk, and the ability to adjust contributions as life circumstances change can make annuities more appealing to younger investors with dynamic lifestyles and evolving financial priorities. 

To effectively reach younger generations, financial professionals must also meet them where they are and speak their language. Leveraging digital platforms, social media, and educational content can spark interest in obtaining valuable insights into the benefits of annuities. Collaborating with trusted influencers and thought leaders who have a strong following among younger generations can also help build credibility and trust. 

Securing financial futures of next-gen clients

As the next generations navigate the complexities of retirement planning, annuities can be a powerful tool to help achieve financial security. By understanding the unique challenges faced by millennials and Gen Z, as well as characteristics that could make them ideal candidates for an annuity, you can help these generations take control of their retirement destiny. 

It’s imperative we present solutions like annuities — with their growth potential, protection features, and customization options — as a compelling path forward. Annuities can provide younger generations with the stability and security they seek, while also offering flexibility to adapt to their evolving needs and circumstances. 

By working together to promote financial literacy, innovation, and inclusivity, we can create a more supportive and empowering environment for younger generations as they navigate the path to long-term financial security.

GBU’s flexible premium fixed indexed annuity offers a range of features that appeal to younger generations, including growth potential, multiple crediting options, “boosted rates,” and generous liquidity features. These align with the desire for flexibility, security, and growth many millennials and Gen Z look for in financial solutions.

To learn more about the FutureFlex FIA and how it can help your clients, including younger generations, achieve their retirement goals, visit gbu.org/ff-fia.

GBU and its agents do not provide tax, legal or investment advice. Please consult with a legal or tax professional prior to the purchase of any contract. GBU Life is the marketing name for GBU Financial Life (GBU), Pittsburgh, PA. Life insurance underwritten and annuities are offered by GBU.

1. https://nationwidefinancial.com/media/pdf/NFM-23094AO.pdf

2. https://www.nirsonline.org/reports/retirementinsecurity2024/

3. https://www.pearsonaccelerated.com/blog/gen-z-more-likely-to-go-to-college/

4. https://corporate.vanguard.com/content/dam/corp/research/pdf/generational_changes_in_401(k_behaviors.pdf

5. https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/future-of-america/how-does-gen-z-see-its-place-in-the-working-world-with-trepidation

6. https://www.blackrock.com/corporate/investor-relations/larry-fink-annual-chairmans-letter

7. https://www.investmentnews.com/life-insurance-and-annuities/opinion/understanding-the-behavioral-benefits-of-annuities-247656

8. https://www.brookings.edu/articles/now-more-than-half-of-americans-are-millennials-or-younger/

9. https://teamstage.io/millennials-in-the-workplace-statistics/