Annuities for Baby Boomers

The U.S. Census Bureau says all baby boomers will be age 65 or above by 2030. With so many people reaching retirement age, it’s time to get serious about retirement planning. While there are many financial tools available, annuities are a very popular option for baby boomers, primarily because they provide retirement income longevity and predictability.

The Graying Population

The U.S. Census Bureau defines baby boomers as individuals born between 1946 and 1964. This generation is significant for many reasons, including its size.

The country is aging along with its baby boomers. It’s estimated that 10,000 baby boomers turn 65 every day. In 2023, the U.S. Census Bureau said 17.7% of the country’s population was age 65 or above. That’s more than 59 million individuals.

The Top Retirement Concerns for Baby Boomers

How will the silver tsunami of retiring baby boomers affect society? While some people are worried about the wider impact on the workforce, the healthcare industry, and the long-term care industry, baby boomers are worried about their personal financial futures.

Top concerns include:

• Earning Ability. Although people may think of 65 as the standard retirement age, many baby boomers want to continue working long past this arbitrary date. According to Pew Research Center, 19% of Americans aged 65 or above were employed in 2023 – a figure that is almost double what it was 35 years ago.

For some people, the desire to continue working may stem from economic factors. Other people may simply want to work because they enjoy it. Regardless, it isn’t always possible to keep working. Older adults may be forced out of the workforce due to health problems or because they need to provide care for a loved one. Older workers who are laid off may also have trouble finding new work, either due to age discrimination or changes in required skill sets.

• Economic Uncertainty. Skyrocketing inflation, market volatility, and the financial health of programs like Medicare and Social Security are all major concerns for people approaching retirement age. Although younger individuals may also worry about these issues, they are even more important to older adults. When you’re living on a fixed income, inflation may be particularly problematic. Likewise, when you depend on investments for money in the short term, market volatility may be unnerving since you might need to pull money out of the market at inopportune times.
• Health. As people age, they tend to develop more health challenges. The National Council on Aging says older adults are disproportionately affected by diabetes, arthritis, heart disease, and other chronic conditions. In fact, approximately 95% of older adults have at least one chronic condition and nearly 80% have two or more.

Many seniors depend on Medicare for their healthcare, but they may still pay a lot out of pocket. Fidelity says a 65-year-old retiring in 2024 could expect to spend an average of $165,000 on healthcare expenses throughout retirement.

• Longevity. The National Council on Aging says a 65-year-old should expect to live another 18.9 years, on average. However, many people will live either shorter or much longer lives, which makes planning for retirement difficult, especially if you have a fixed savings amount.

Imagine a person who retires at 65 and calculates that he has enough savings for 20 years. If he dies at age 85, his savings should be sufficient. But, what if he lives to the ripe old age of 100? That’s an additional 15 years. Many retirement budgets simply can’t stretch to accommodate a retirement period that’s nearly twice as long as the retiree expected.

• Quality of Life. The length of a person’s life isn’t the only thing that matters – quality of life is also important. Many new retirees are excited to finally have time to focus on their hobbies and travel the world. However, whether they are able to will depend on if they have enough money and if they’re in good enough health.

Older adults also want to be in control of their retirement years. For many retirees, this means staying in their homes rather than moving into an assisted living facility – at least for as long as possible. When seniors eventually do need to move into a facility for better care, they want to be able to select one where they’ll be happy.

What Is An Annuity?

Annuities can’t solve every challenge baby boomers face, but they do help with many of the most pressing issues.

An annuity is a contract between an individual and an insurance company where the individual pays an upfront premium and, in return, the insurance company provides a steady stream of payments. These payments may start immediately, or the annuity may accumulate and payments start at a predetermined future date. There are different types of annuities, including variable, fixed, and fixed indexed annuities:

• Variable annuities grow at a variable crediting rate tied to the underlying investments. They also provide variable payouts.
• Fixed annuities grow at a guaranteed minimum crediting rate. They can provide a higher crediting rate based on the performance of an external index or grow at predetermined crediting rates and offer guaranteed payouts.

How Annuities Provide Baby Boomers with Retirement Income

Seniors frequently use annuities as a source of retirement income. In fact, annuities have been growing in popularity as many seniors discover that annuities solve some of their biggest concerns:

• Earning Ability. If seniors are forced out of the workforce earlier than they had hoped, they may still need a source of income. Annuities provide a regular payments, much like a paycheck.
• Economic Uncertainty. Nobody knows what the markets or inflation will do next, but annuities offer stability. How much stability depends on the type of annuity. For seniors who are worried about market volatility, a fixed annuity that grows at a fixed crediting rate and provides a guaranteed payout may provide the greatest peace of mind.
• Health. Health might seem like one concern that annuities can’t help with, as an annuity can’t guarantee good health or prevent chronic conditions. However, an annuity can provide the financial stability older adults need when navigating health concerns and the related costs, alleviating financial stress and providing invaluable peace of mind.
• Longevity. Annuities provide a steady stream of income, which is especially attractive to older adults who are worried about outliving their savings and don’t think they could survive on Social Security retirement benefits alone.
• Quality of Life. Money often equates to freedom – freedom to travel, to spend your time how you want, and even to live where you want. A lack of financial stability may lead to stress and reduce a person’s quality of life. Annuities help relieve some of this financial uncertainty, giving seniors more control of their retirement experience.

Is an annuity right for you? If you’re one of the millions of Americans reaching retirement age, an annuity could help you navigate retirement on your terms. Learn more.