Gen Y Starting To Think About Annuities

By Linda Koco

Generation Y had some surprising answers to a simple survey question about annuities. Posed by researchers for TIAA-CREF, the question was: Have you purchased an annuity or do you plan to in the future?

Based on their ages — 18-34 — virtually all of these younger adults might be expected to answer “no.” After all, the annuity often is described as a retirement product “for old people.”

As it turned out, however, fully 14 percent of this generation answered, “Yes, I have already purchased an annuity.” That’s the same percentage claimed by older baby boomers, ages 55-64.

Conducted in early January by KRC Research on behalf of TIAA-CREF, the survey polled views of 1,000 adults ages 18 and older.

The results may be more reflective of people in the retirement plan environment rather than retail customers, since TIAA-CREF is a plan provider and it offers in-plan annuity options. Still, the results provide a profile of Gen Y annuity trends not often seen.

More surprises

According to the survey, the Gen Y yes answers reflected close to twice the percentage of their next oldest generation — Generation X. Only 8 percent of Gen Xers said they had already purchased an annuity.

Still another highlight: The Gen Y percentage is not much smaller than that of younger boomers, ages 45-54, of whom 17 percent answered yes to the already-purchased question.

The only age group with a larger percentage of yes answers, among all age groups, was the mature adults, ages 65 and older. That demographic included the oldest baby boomers as well as the entire silent generation (now ages 70 and older) - people widely considered to comprise the primary annuity-buying marketplace.

In this oldest population, 18 percent said they already had bought an annuity. This is not all that much higher than the 14 percent of Gen Yers who said they have purchased an annuity.

Taken as a whole, these results reveal that while annuities are not stealing the show, they definitely have some mindshare among young adults.

Annuity-mindedness

This annuity-mindedness showed up in other answers to the have-you-purchased-or-do-you-plan-to question, too.

For instance, although 18 percent of Gen Y said no, they had not purchased an annuity, they added this qualifier: “But I plan to (buy an annuity) at some point prior to retirement.” This was a higher percentage than all of the other age groups who gave the same answer-with-qualifier.

None of the other generations even registered a double-digit response rate on that answer. So it appears that Gen Y is leaning more toward an annuity future than each of the other generations

The Gen Yers also topped the list of those answering “No, but I plan to (buy an annuity) when I retire.” Ten percent of Gen Y gave that answer. Only the younger boomers, ages 45-54, came close, with 8 percent saying the same.

Not all Gen Yers have annuities on the mind, however. For instance, half of them (52 percent) stated flat-out that, “No, I do not plan to (buy an annuity).” That seems to fit retail sales trends that have shown very few Gen Yers have signed on the dotted line for an annuity.

However, all the other age groups had individuals who also responded with a flat-out no, and in even higher percentages than Gen Y. For instance, 60 percent of the youngest boomers said, “No, I do not plan to (buy an annuity).” Next came Gen X at 62 percent, older boomers at 65 percent, and the age 65-plus group at 75 percent.

By comparison, the Gen Y looks more annuity-motivated than all the other generations.

Breathtaking but…

The Gen Y numbers are breathtaking considering that only one-fourth (26 percent) of that age group said they are familiar with annuities. By comparison, half of the older boomers (48 percent) claimed familiarity with annuities.

But the Gen Y responses appear to be in line with the receptivity the age group showed to receiving a monthly income for life. Three-fifths (61 percent) of Gen Yers told researchers that they are totally willing to commit a portion of their retirement savings to a “choice” that will allow them to receive such a payment.

No other age group registered such a high percentage on that point, although Gen X came close at 57 percent as did the younger boomers, at 56 percent.

The Gen Y annuity responses also align with the generation’s top retirement goal. Close to half (42 percent) of these young adults told researchers that if they could set a primary goal for their retirement plan, it would be “to provide guaranteed monthly income every month” to cover their living costs in retirement.

The runner-up goal, at 34 percent, was to ensure their savings will be “safe regardless of what happens in the market.”

The savings shortfall

In the savings department, Gen Y is “falling short in some areas,” the researchers said. When asked what percentage of current annual income they are currently saving for retirement, for example, 31 percent answered “none.”

That’s not entirely unexpected. Many Gen Yers came of age during the Great Recession, and “they face higher student loan debt and fewer prospects for full-time employment with benefits than previous generations,” noted TIAA-CREF executive vice president Teresa Hassara in a statement on the survey. This is making it harder to save enough for a comfortable retirement, she said.

Her take is, “The gap between the need for financial security and having the will and the means to achieve it may well impact this generation for decades to come.”

On the positive side, though, the survey also found that 22 percent of Gen Yers are saving more than 10 percent a year for retirement. That includes employer contributions to a retirement plan at work — an important point for TIAA-CREF, given its role as provider of retirement services.

For annuity professionals in general, the positive news from the survey is that annuity-mindedness already exists in some young adults.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].