Is it time to reintroduce Gen Z to annuities?

New research has found that Generation Z is finally starting to pay attention to their retirement plans, including considering annuity solutions. But with misinformation on the product rife online, two industry experts are emphasizing the need for education on how annuities can benefit Gen Z and when they should consider investing.

Kush Kotecha, president of Nationwide Annuity, said Gen Zers are facing retirement without access to “traditional pensions like generations before them,” and many are concerned about “Social Security’s long-term viability, making guaranteed income even more pressing.”

“The rising cost of living and market volatility over the last few years have compounded these concerns, causing this generation to be more open to guaranteed income solutions like annuities than ever before,” Kotecha said.

However, Roberta Rafaloff, vice president and head of institutional income annuities at MetLife, said, “There really is a clear gap between expectations and reality” that must be addressed when it comes to Gen Z and retirement planning overall.

“Part of the issue today is people look at defined contribution plans as a savings plan,” Rafaloff said. “Yes, it absolutely is a way to save money, but it needs to be reframed as a way to save money for retirement and to replace that paycheck that you got while you were working.”

Both experts agreed that annuities could be a good option for Gen Z to consider for retirement planning further down the line, but emphasized the need for advisors to help Gen Zers weigh their choices and set them up for future success.

“My guess is the decision to purchase annuities will be more likely to occur for some Gen Zers when they advance further in their investment journeys,” Kotecha said. “But, in the meantime, there is an opportunity for advisors to build awareness and understanding, which could lead to action when the time is right.”

Gen Z investors are eyeing annuities

A spokesperson shared unpublished data from Nationwide Retirement Institute, which found 33% of Gen Z investors aged 18-29 said lack of guaranteed income is their biggest concern when it comes to retirement planning.

That research showed 62% of Gen Z investors said they are more likely to put part of their portfolio in an annuity or guaranteed income solution as a result of last year’s global events.

About one-third of Gen Z respondents said they place high value on having guaranteed income sources such as annuities, while 29% said not having guaranteed income sources, such as annuities, in retirement is one of the concerns they’re most stressed about when it comes to retirement planning.

Yet, that same research showed only 3% of Gen Z investors have already invested in an annuity or other form of guaranteed income solution.

Kotecha suggested this disconnect could be because many Gen Z investors don’t fully understand what an annuity is and how it can help. 

“Younger generations are more likely to turn to social media and other nontraditional sources for financial information,” he said. “With that comes potential misinformation about products like annuities, which may have fueled some skepticism and turned some Gen Zers off a bit.”

Tackling misinformation

Rafaloff said it’s “important and urgent” for advisors to help educate younger clients on retirement planning, including annuity solutions.

She cited research that suggests younger Americans worry they’ll only have enough savings to last around 15 years of retirement, while the reality is that retirement can last 20 to 30 years.

“I think what is critically important for the Gen Z population and people in defined contribution plans in general is education,” Rafaloff said. “How do we provide the right level of education for younger people so that when they do get to the point where they need to start thinking about converting their assets into guaranteed income, they have the education, they have the knowledge, they understand what the risks are in retirement?”

She noted that many young Americans have not begun to think about retirement yet, but said the sooner people are encouraged to start to think about their plan, “the better it will be for everyone.”

However, she underscored that timing matters, and she does not encourage Gen Zers to buy annuities too early on.

“I don’t think that really young people should be investing in a product that they’re not going to need for 40, 50 years,” Rafaloff said. “During your working career, our viewpoint is that people should save as much as they possibly can in their defined contribution plan so that when they retire, they do have a significant nest egg that they can then turn into guaranteed income.”

“Advisors should talk to their Gen Z clients now about the advantages of investing in annuities, breaking down misinformation and misperceptions,” Kotecha added. “Retirement may feel like a lifetime away for many Gen Zers, but without proper preparation now, that future retirement may slip out of reach.” 

Rayne Morgan is a journalist, copywriter, and editor with over 10 years' combined experience in digital content and print media. You can reach her at rayne.morgan@innfeedback.com.