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Thought Leadership in Action

Gen X Takes a Closer Looks at Annuities

Annuity sales have been focused on retiring baby boomers, but advisers may be overlooking a key market if they only focus on people close to retirement.

 Members of Generation X are three times more likely than baby boomers to express extreme interest in purchasing an annuity as part of their retirement income plan, according to Protected Retirement Income and Planning Study from Alliance for Lifetime Income and annuity data provider CANNEX.

 Interest in retirement income is broad-based. Over half of all investors (whether they own annuities or not) are interested in purchasing an annuity as part of their retirement income plan, according to the report, which surveyed more than 1,500 investors ages 45 to 75 with more than $100,000 in invested assets and 600-plus advisers this spring.

 The level of interest among Gen Xers, investors, ages 45 to 54, jumps to 71%. Meanwhile, nearly 90% of all investors said that it is important that their retirement income plan is designed to provide a guaranteed income payment or principal protection, which are two features that annuities can do well.

 “Financial professionals continue to substantially underestimate how much their clients are looking for protected income in retirement,” said Tamiko Toland, CANNEX’s director for retirement markets, in a statement.

Advisers Should Reach Out Beyond Their Comfort Zone

Researchers found that two-thirds of financial professionals have changed their approach to retirement planning in the past year. The reasons are twofold: 71% of advisers say they adjusted their financial planning because of low interest rates and nearly half of advisers made changes due to low returns on bonds.

 Among financial professionals whose approach to income planning has changed, 46% use annuities more for income, 41% use annuities more for asset growth, and 19% use annuities more for tax deferral.

 There appears to be a disconnect between the importance advisers place on retirement income and their clients. The study found that 55% of investors said protecting income is very important, compared to just 39% of financial professionals.

 Still, eight out of 10 advisers report speaking about retirement income planning with nearly all clients age 55 and older. The study indicates that financial professionals perhaps should have retirement income conversations sooner with investors, especially among their Gen X clients.

Why Annuities Appeal to Gen X

The lack of pensions, and therefore guaranteed lifetime income, is haunting Gen X. Pension ownership, including both public and private sector investors, among people ages 45-54 was only 45% compared to 52% for investors ages 55-64 and 65% for people 65 to 75 years old.

 With this missing pension coverage, it’s no surprise that 58% of Gen Xers said they embrace annuities as an alternative to pensions.

 Among investors with employer-sponsored retirement plans, such as a 401(k), many of whom are Generation X, 56% are interested in investing in an annuity through their workplace retirement plan. The SECURE Act of 2019 makes it easier for retirement plan sponsors to provide annuities to participants.

 As Generation X moves to retire, the need for lifetime guaranteed income will grow stronger. Advisers who address this need sooner will prosper.


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