Selling annuities to younger workers: A lesson in futility?
By Alanna Ritchie
Marketing annuities to younger workers may seem like a futile task. At first glance, annuities might not appear to be the most appealing or prudent investment for these consumers.
However, standard retirement plan options are changing, allowing a platform for annuities to succeed as a valuable option for members of Gen X — those in their 30s and 40s — who may be deciding how best to save their hard-earned money.
Obstacles in selling annuities
With decades until retirement, Gen Xers may not have their future income at the forefront of their minds. Other financial concerns vie for their attention, like mortgages, car payments, family costs, savings accounts and traditional retirement plans. Annuities often must compete with other retirement products such as 401(k)s and IRAs, which banks and employers advertise and sell on a competitive scale.
Today's financial climate presents another challenge for annuity sales, as low interest rates limit the growth potential for certain types of annuities.
Insurance companies recognize these constraints and often focus their annuity marketing on retirees or those close to retirement. And so, an audience that could benefit from tax savings and interest growth in the time between now and their golden years gets put on the back burner.
Changes to standard retirement income
Some younger investors can be convinced to see annuities as self-funded pension plans. These plans have contribution advantages, tax savings, and the ability to replace the income deficit created by fewer employers offering retirement plans and the threatened viability of Social Security.
Pension plans are decreasing in popularity. In 1998, pension plans were a given for many companies, with 90 of the Fortune 100 companies sponsoring a form of a pension plan. By 2012, that number had dropped to 30. Today, the Bureau of Labor Statistics reports that only 9 percent of private companies offer pensions.
With the decrease in employer-sponsored plans, some are turning to IRAs and 401(k)s to fund retirement. But unlike annuities, these plans have contribution limits. People younger than 50 can only contribute up to $5,500 to an IRA and $17,500 to a 401(k).
Finally, relying on Social Security as income may not be a wise choice, as the Social Security Administration has said that it will be unable to meet obligations for retirees beginning in 2033 — two years after the first Gen Xers begin to retire.
Room for growth
Young investors looking beyond pension plans, IRAs, 401(k)s and Social Security to fund income for retirement could benefit from an annuity.
One valuable option for Gen Xers would be a deferred variable annuity. The account is opened with a modest deposit, allows for contributions similar to a 401(k), provides the flexibility to choose stocks and funds based on risk profile, and includes the option of a rider that guarantees an income stream during retirement. And as money matures in an annuity, taxes are deferred.
Although retirement is not right around the corner for Gen Xers, the time cushion should not prevent insurance companies from marketing to these younger consumers who may be surveying the many options to protect their financial future.
The ideal climate for annuity sales
Generation X : Savings slackers or victims of advisor negligence?
With baby boomers retiring, don’t forget about the needs of Generation X
The only two annuity sales you will ever make in a today’s volatile market