Ask Y and Build Your Annuities Sales
March 15, 2013 by Kim O'Brien
Y?…because the Y Generation is the next big market for fixed annuity purchases. The Y Generation, which follows the X Generation, is also called the Echo Generation because they are mostly children of Baby Boomers. While there is no precise start and end dates to define the exact members of this generation, many sources agree it starts around the late 70s and ends around 2000 or 2001, which is why they are sometimes also called the Millennials.1 But make no mistake, regardless of a year here or there, this is a large segment of our population; by most demographic measurements, the Y Generation enjoys somewhere from 80 to 95 million members.
This generation is also called the “Peter Pan” Generation because of their propensity to stave off adulthood. They “don’t want to grow up” as the famous song goes, and they push off jobs, family and even their own place to live well into their late twenties. However, this may not always be by choice. Experiencing two major economic downturns in their early adult years (2002 and 2008), perhaps gives Gen Y’s reason for their low confidence in long-term economic prospects and livelihood. Just recently, it was reported that half of all new college graduates in the U.S. were either still unemployed or underemployed.2 So, how does this spell ANNUITY SALES?
NAFA believes that the economic tide will be turning for this generation and for the economy in general, but regardless, the Gen Y’s have little option but to begin to prepare today for their retirement. There are a number of indicators to support this, and we start with one significant statistic: more than 75% of Gen Y’s surveyed during their college years believe that being wealthy was very important to them, while only 45% of Baby Boomers, most of this generation’s parents, believed it. Having a strong and sustainable retirement plan is the cornerstone to this dream.
Meanwhile, a recent study completed by Employee Benefit Research Institute suggests that, for those with jobs, their confidence in the ability of Social Security and Medicare being able to provide for them in their retirement is rapidly decreasing3. Last month, this column discussed a recent IRS presentation telling us that while today’s retirees depended on Social Security as the major source (90%) of their retirement income, future generations can be expected to have only about 55% of their income from Social Security4. The study completed by EBRI suggests that today’s workers agree with the IRS prediction.
Attitudes about Social Security and Medicare (Fact #7 in the ERBI Retirement Confidence Survey, which can be found at www.nafa.com under member resources)5 states that “while worker confidence in the value of future benefits from Social Security and Medicare has remained relatively stable, retiree confidence in the value of future program benefits has gradually eroded over time.” The survey states that about 79% of today’s employees are less likely to expect that Social Security will be a source of their retirement income, compared to 91% of today’s retirees reporting having Social Security income.
Compounding the lack of security in receiving Social Security is the uncertainty over Medicare. According to EBRI, 64% of employees have little confidence that Medicare will continue to provide the same benefits that retirees receive today. This means today’s retirement planners will need to find additional assets to cover health care costs, which many experts expect to continue to increase as medical and health insurance inflation continues.
EBRI also reports that the amount of savings workers put towards retirement is minimal (see Fact #3, Preparing for Retirement in America). Almost 60% of the workforce reported that they have “less than $25,000 in total savings and investments” (this excludes homes and benefit plans). This startling statistic includes approximately 30% of the workforce with less than $1,000.
It isn’t all gloom and doom for our Peter Pans. The U.S. Bureau of Labor Statistics estimates that they will comprise more than 40% of the U.S. workforce by 2020, far outnumbering any other generation. They will have more to say about their jobs and their benefits. An August 22, 2012 story in the Wall Street Journal reported that “more companies are jumping through hoops to accommodate their demands for faster promotions, greater responsibilities and more flexible work schedules.” The reason, WSJ states, is that concessions are necessary to retain the top performers and to “keep their pipelines full” to compensate for the loss of older workers to retirement.6
So, as they begin their money-making years, with less confidence in Social Security and Medicare, less defined benefit plans, constricted employee-matching in 401(k) and other employer-sponsored defined contribution plans, how will they begin to build that dream of wealth today and their future retirement? Annuities, of course! By all reports, this generation with low financial literacy is more than ever in need of strong financial professionals to help them discover and purchase the only financial product available with guaranteed savings protection and income they cannot outlive.
This generation is reported to have the closest affinity with their parents and fellow employees from other generations. According to two different studies, 90% of these Peter Pans claimed to be “extremely close” to their parents7 and believe older generations have better morals8. So, they are open to seeking out and trusting financial professionals with their retirement savings options. Technology and product knowledge will be critical to today’s annuity salespeople, allowing them to take advantage of this significant market opportunity. Gen Y started out with computers in their homes and was the first in line for the iPad and mobile communications marketplace. They are very comfortable exploring, researching and doing extensive comparisons on the internet. Importantly, they are also very comfortable meeting, and making purchases, in non-traditional settings, both physical and virtual. Today’s annuity salespeople need to get out of their comfort zone and fully embrace social media and all things virtual. In addition, a complete knowledge of all available annuity products and annuity product features will be the key to getting that Y customer. Fortunately, there is an abundance of tools and vendors that can help. Many of them are NAFA members and are also advertising in this magazine. So, reach out and get started, and you will know Y.
1 “Date/Age Range of Baby Boomers, Gen X, and Gen Y”.
2 Altavena, Lily, The New York Times, April 27, 2012, “One in Two New College Graduates is Jobless or Unemployed.”
3 Employee Benefit Research Institute (www.ebri.org) Retirement Confidence Survey 2012 and 2012 Fast Facts
4 IRS 2012 Annuity Guidance, August 28, 2012, presented by Larry Isaacs, IRS and Carol Zimmerman, IRS.
5 http://www.ebri.org/pdf/surveys/rcs/2012/fs-07-rcs-12-fs7-soc-sec-medicare.pdf
6 The Wall Street Journal, LESLIE KWOH, More Firms Bow to Generation Y’s Demands, August 22, 2012.
7 Nancy Gibbs, March 11 2010, Time Magazine, “How Millennials Perceive a New Generation Gap.”
8 Mahoney, Jill (2011-07-12). “Stronger by Association: Understanding Generational Conflict”
