This year is making history. We’re in the midst of “Peak 65,” a historic surge of Americans retiring in the U.S. By the end of this year, an average of 11,400 Americans will turn 65 each day, totaling an estimated 4.2 million people who will reach retirement age in 2025 — the highest number ever recorded. This wave – or “silver tsunami” is expected to continue each year through 2027, according to the Alliance for Lifetime Income.
This presents both a major opportunity and a challenge for carriers, distributors, plan sponsors, and employers looking to provide the best retirement options for their employees. This becomes even more true when considering that more than half of Peak 65 consumers have only saved $100,000 or less, making it almost certain they will run out of retirement savings and have to rely on Social Security as their only source of income. That is, unless a diversified set of options are considered and presented. This includes adding life insurance and annuities (L&A) products into the mix, with the latter experiencing a huge surge in interest and popularity as more working individuals reach retirement age.
In the first half of 2024, the market saw a 19% increase in annuity sales in comparison to the previous year. Our data reinforces this trend, with our network — which is used by a third of advisors in the U.S. — reporting a nearly 27% year-over-year increase in annuities sales.
As these trends continue to evolve, and demand for annuities and life insurance grows, employers, plan sponsors, carriers, and distributors alike need to consider the unique needs and challenges this generation is facing. It will be essential to adjust business models to meet these changing needs, which can be done through integrating digital tools that streamline otherwise long and arduous sales processes while also providing bespoke offerings that drive positive customer experience.
Thinking differently to meet the demands of a new generation
A lot has changed since the first baby boomers were born in 1945, the most obvious of which is life expectancy. In 1945, the average life expectancy was 63 years. Those born today can expect to live to almost 79 years on average. This trend is commonly referred to as the “mortality gap.”
Living longer means that the retirement saving tactics of yesteryear simply won’t suffice anymore, as individuals risk outliving their savings. In the United States alone, the current mortality coverage gap is estimated to be $25 trillion. With pension provisions from governments and businesses expected to continue to decline, setting up growth in savings products and group annuities over the next several years will be critical.
All of these trends create an urgent need for deeper diversification, namely through employer-sponsored plans, like 401(k)s, and increasingly, life insurance and annuity plans. Diversification becomes even more important when you consider that Social Security is realistically only meant to replace about 40% of annual pre-retirement earnings. With this in mind, employers must make it a priority to offer plans with a variety of options, which could offer a supplementary guaranteed income source to Social Security, like annuity plans.
Today, 7 out of 10 employers say their company’s benefits package plays a critical role in attracting and retaining the best workers. If sponsors and employers can find a way to simplify the annuities process, they can better meet the growing demand for guaranteed income products which will help them retain and attract talent while helping to close the retirement savings gap for their employees.
A driving force to fast-track digital transformation
Peak 65 offers the opportunity for the entire life and annuities industry to make the final jump into digital transformation. Make no mistake, these older generations are not as technologically averse as you may think. They’re increasingly looking to access financial products in a digitally seamless and customized way and may look to advisors to offer more transparency. As transparency and customization are increasingly sought after, benefit professionals are actively looking for life and annuities partners that can provide these features.
Now is the time for carriers, distributors, and plan sponsors to revisit outdated processes that are stunting growth and revamp their offerings with new products. For example, by integrating digital sales platforms — such as e-signatures and e-applications — transactions can be streamlined to deliver a unified user experience while improving the buying and selling process, from start to finish.
Peak 65 + the great generational wealth transfer = opportunity
As retirees and the workforce in general become more diverse, and simultaneously more interested in planning for their financial futures, they bring along unique and differing product and service expectations. At this mid-point of the Peak 65 phenomenon, the great generational wealth transfer is taking place between baby boomers and younger cohorts, but in particular, among women. It’s expected that by 2030, American women will control much of the $30 trillion in financial assets that baby boomers possess – a wealth transfer that approaches the annual GDP of the United States.
Related: America’s ‘Peak 65 Zone’: As record numbers reach retirement age, 401(k)s are at a crossroads
To capitalize on this major opportunity, which will enable them to tap into a new source of buying power, advisers must first understand where these female buyers may prefer to allocate their funds, as well as which products will help them fill the gaps in their portfolio. For instance, life insurance is an often-overlooked place in women’s financial portfolios, with only 49% owning a life insurance policy compared to 55% of men. Customized data will allow for tailored sales tactics targeting specific buyer groups, which will ultimately create a more personalized customer experience overall, all while helping to close this gap.
The era of digital transformation meets the era of retirement
Peak 65 is a massive milestone for working Americans, but it also offers a test for the industry as it aims to ramp up its speed into the digital future, and an opportunity to rise to that challenge. To meet changing demands and diverse needs, the life and annuities industry, employers, and plan sponsors must understand the enormous challenge that the baby boomer generation faces.
Currently, baby boomers are living longer and need retirement options that can travel that journey with them. On top of that, they are a generation that has a global retirement savings gap that is estimated at US$70 trillion. The L&A industry must lean into data to provide unique and tailored offerings, optimize processes to be faster and more transparent, and replace outdated, paper-based models that deter buyers and cause friction with integrated, digital sales platforms. Only then will the industry find long-term success and business growth with not only this generation but with the ones to come.
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