The Future is Aging: Fintech Solutions for a Forgotten Generation
In the coming years, $30 trillion of wealth will be transferred from the baby boomers to Gen Xers in the United States; the greatest transfer of wealth in our history. However, baby boomers are also spending more than their predecessors during retirement and control about 70 percent of all disposable income in the US. As retirees continue to take advantage of their newfound time and freedom, spending on travel and consumer goods — especially with a health and wellness focus — has significantly increased. At Anthemis, we see both of these dynamics as untapped opportunities for fintech startups to better serve the changing customer landscapes. While technology has begun to address the aging population, we still believe there are a lot of white spaces, especially within the financial services sector.
Managing the Decumulation of Wealth
If millennials and Gen Xers are in the accumulation phase of their wealth, we think about retirees in the decumulation phase. In the decumulation phase, it is taken for granted that careful financial planning to that point should set one up for a healthy retirement. But it is not just about being able to pay for housing and food, baby boomers are outspending younger generations in terms of consumer goods, travel and leisure — by $400 billion and $120 billion, respectively. So, with more and more retirees continuing to travel, shop and play an active role in their communities, the need for wealth management does not disappear in the drawdown phase.
Retirees need help understanding that they can buy a Peloton and still have enough to cover unexpected long-term care costs; that they can become a global traveler without later needing to reverse mortgage the house they planned to leave to their children; that they can spend money, just like the younger generations, without worrying about their finite savings. Furthermore, while baby boomers continue to spend, they are also conscious of passing down wealth to their children in order to help with the debt burdens that weigh on younger generations.
Robo-advisors, personal finance managers, challenger banks and other tech-enabled wealth management or consumer finance platforms have focused on acquiring customers as early as possible. This means typically targeting millennials that are considered HENRYs (high earners, not rich yet) or even going for young adults or teenagers. While there is a need to serve those cohorts — and companies benefit from supporting consumers early and creating trust — that focus has also meant a lack of attention paid to older (and already wealthier) generations.
Today, baby boomers are the primary customers of traditional register investment advisors (RIAs). Many believe that they are not open to more technologically enabled solutions; however, little has been built for them despite an increase in technology adoption over the last 10 years with 67 percent of baby boomers owning a smartphone, 52 percent a tablet and 57 percent active on social media. As baby boomers enter retirement, this lack of offerings becomes even more apparent.
The current retirement solutions make a few assumptions. First, they assume that retiring means the same for everyone. For some, retiring means fully exiting the labor force while, for others, it may mean stopping their 9-to-5 but continuing with odd jobs and services. In today’s work, the latter is becoming increasingly common. Secondly, the solutions assume retirees will just pass their wealth down — which is not just abandoning the customer, it is leaving significant money on the table. While, at this stage in their financial life they might not need as much intensive guidance, technology can provide a low-touch platform that helps retirees predict, manage and monitor their spending according to their habits.
Caretakers Need Support Too
Targeting those already in retirement means providing solutions for the retirees and their potential caretakers, an indirect opportunity to address a broader customer base. There often comes a time when a retiree is no longer able to manage on their own. Most people think about this in terms of an ability to live alone and take care of oneself but this also applies to finances. Whether it is unnecessary spending, the failure to pay bills or forgetting account information; it is not unusual for someone else to step in to help out. This transfer of control and information can result in resistance and in an extremely fragmented, non-comprehensive process. Initiating this process prior to the time of need can eliminate some of the emotional toll and confusion. This, we believe, creates a great opportunity to design a platform across generations.
Baby boomers are not the only group that technology has ignored (Nicole Quinn from Lightspeed does a great write up on the opportunity); the same can be said of the Gen X population. While this population may not be as digitally native as the millennials, technology has still been ingrained in their daily lives. But, like the baby boomers, they have largely been forgotten by technological innovation. However, this impending influx of capital creates new chances to form a relationship. It means greater demand for products or platforms that provide planning solutions, investment opportunities or, in general, a better understanding of their financial situation and that of their dependents.
Solutions for end-of-life planning products, trust management platforms and caregiver platforms create an opportunity to target customers when their needs are greatest, creating a higher demand, more efficacy and higher conversion with a population that has a high-average spending power.
How to Retire When You Have Not Planned
Capturing at the time of transfer of wealth creates the start of a potentially cyclical relationship for companies to serve customers through every stage of their life.
We see three types of potential consumers:
· Person A: A high earner actively using existing solutions to manage his/her capital. This person also understands that many traditional financial services providers overcharge, so is open to finding cheaper, more personalized and more efficient solutions. While there may be some switching friction, the need is understood, so the educational hurdle is lower
· Person B: Not particularly fiscally responsible yet, though he/she has been passed down significant capital and needs to figure out how to manage it for the first time. Customer acquisition of this type of consumer is more focused on education i.e. the products and services that exist and what is best for his/her situation
· Person C: Lower-income individual who is unsure where to begin in terms of retirement planning. This person is not necessarily fiscally savvy but wants to ensure that he/she has enough financial support through end of life
While we have mainly discussed individuals who have capital to spend during retirement, a large portion of the population is not saving enough — if at all — for retirement. A 2014 study found that one third of baby boomers (with an average age of 58) had no money saved in their retirement accounts. Of the population that has been saving, many underestimate what it takes to even sustain their lifestyle throughout retirement, without accounting for the extra travel and spending they might want to do.
Technology can help unlock products and solutions that were once deemed exclusive for the wealthy, broadening access to all. Tackling this issue can be done at several levels:
· Helping people to start saving early. There are companies that are helping people save for retirement — including Anthemis portfolio company Betterment — by trying to solve this issue early on, helping millennials establish goals and invested savings. However, it is more difficult to convince individuals that are 30–40 years away from retirement to plan, especially when they are often laden with student loan debt. Despite the challenge, with the decrease in US pensions and most millennials believing they will not be able to rely on social security when they retire, the need to rethink how we plan for retirement is pressing
· Optimizing retirement situations. Our portfolio company Kindur is helping Americans “retire fearlessly”, but this market is huge and ripe for innovation from every angle. How to plan for changes in real estate needs, long-term care costs and health care planning are all critical to retired life. Encouraging people to plan how much they might need and how that money will be spent is crucial (both in terms of necessities as well as superfluous spending, if possible). Otherwise, cost burdens typically fall on the children, requiring them to care financially for their parents and their own children
Retirement savings and the transfer of wealth is a cyclical problem. What one generation does or does not do directly impacts the next. At Anthemis, we see opportunities for tech to improve the financial life of any person at any financial stage. While there is beginning to be slightly more attention paid to older generations in terms of technology generally, and in fintech especially, the majority of innovation has targeted the younger and more ‘tech savvy’ generations.
Today, we know that the aging generations are just as open to — and increasingly comfortable with — technology as the millennials; we know that what a modern retiree looks like and how they spend has changed drastically. That is why at Anthemis we are excited to speak to companies that are focused on fintech solutions for the aging population.
Have an Idea?
We would love to speak to you. We invest early in ideas and people that are looking to change how solutions in the financial services industry are created, executed and distributed.