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The Upside Benefit for Women of Guaranteed Income in Retirement

Those who have followed my retirement conversation over the last twelve years know that as a rule, I don’t like annuities. For most of us, this sort of—and I hesitate to call it such—investment is something you purchase to guarantee income. Part mutual fund, part insurance policy, and wholly too expensive on both counts, annuities, for whatever reason you purchase them, offer the buyer some peace of mind. For women, annuities are particularly troubling and expensive. But the concept of guaranteed income for women in particular, is worth exploring.

When Amy Matsui of the National Women’s Law Center spoke to the Senate Special Committee on Aging recently, she opened with the cold, hard facts of retirement. Women, she noted, tended to have smaller balances in their defined contribution plans or IRAs when compared to men ($34,000 on average compared to the $70,000 men had accumulated).

She strongly criticized the concept of these sorts of plans in part because of the self-directed nature of the plans, the feeble if inadequate investment selections available and the inherent risks these plans pose to the average, even experienced investor. Because women tend to stay in jobs for less time than men, the chances that any defined contribution plan asset accumulation would be less, even below the minimum required balance that would allow them to keep the plan at an old employer. So they receive the lump sum payment, with the taxes and penalties and of course, the problem of starting over.

Ms. Matsui also pointed out that women are exposed to longevity risk more so than men. When a lump sum is paid by a 401(k) at retirement, the investor is left with managing that money so as to not run out. This can be a particularly daunting task for women—not because they are less savvy investors, many are more so than men—but because they will live longer and may outlive their spouses as well.

Paul Petillo is the Managing Editor of and contributor to MomsMakingaMillion Radio