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Deferred Income Annuities Appeal to Generation X


People in Generation X are between the ages of 35-48 and most are not very close to thinking about retiring.  For this reason, most annuity experts don’t believe that Generation X is interested in the newly popular deferred income annuities.  New York Life found that deferred income annuities actually do appeal to Gen X after making a minor change to their DIAs.  In Insurance News Net’s article, “New DIA Market: Generation X,” Linda Koco talked about the change that brought Gen Xers into the deferred income annuity market.  When you buy a DIA, the payments are deferred for many years, often decades, before you start receiving your income stream.  Since Generation X members are typically pre-occupied with paying student loans and mortgages, experts assumed that such a deferred investment product would not appeal to them.

Earlier this year, New York Life decreased the premium amount on their deferred income annuity to $5,000.  The Guaranteed Future Income Annuity’s premium had previously been $10,000.  They did this for many reasons, but consequently saw a decrease in the average age of consumers buying their DIA.  New York Life’s deferred income annuity purchasers have an average age of 58.  After lowering the premium on their Guaranteed Future Income Annuity, the average age of people buying it now is 48.  Industry-wide the average age for DIA clients is in their late 50’s-early 60’s, so this change from New York Life has proved significant.  The oldest members of Generation X are now 48, so it’s no coincidence that this generation is now being tied to deferred income annuities.

New York Life was hoping to attract Gen X and Gen Y investors by lowering the premium on this DIA.  These generations are the least likely to have company pension plans, so the insurer hoped that their DIA would appeal to younger workers looking for a way to guarantee a future income stream at retirement.  The fact that New York Life made this premium change could be a big deal for the annuity industry since they are the top seller of deferred income annuities.  We might see competitors making a similar change soon.  DIA money is qualified and most of the people purchasing with the lower premiums are doing so through a new IRA.  It’s important to note that the $5,000 premium is just under 2013’s $5,500 IRA contribution limit for workers who are younger than 50.

The main reasons that younger people are likely looking to use this DIA are to get a tax-qualified retirement plan when they don’t have one at work, find a way to finance their retirement that is similar to the pension that their parents or grandparents had, and it is affordable enough that they can still pay their other expenses.  Two groups of people buying these deferred income annuities in large numbers are those who are self-employed and young Baby Boomers without a work retirement plan.  Contact one of Annuity FYI’s experts if you have questions about deferred income annuities and their guaranteed income.

Written by Rachel Summit

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