Lower lifetime earnings and longer life expectancies put women at a disadvantage when it comes to a secure retirement. One solution: helping them turn workplace retirement account balances into guaranteed income streams for life. Or in retirement-speak: annuitizing defined contribution plans. "Women would really benefit," said Brigitte Madrian, Aetna Aetna professor of public policy and corporate management at Harvard's Kennedy School, speaking at Congressional hearings on "Women's Retirement Security" convened by Sen. Amy Klobuchar (D.-Minn.). It would help with the longevity risk women face, and with the increased risk of cognitive decline and the consequent diminished capacity to manage financial assets that comes with aging.
Even before aging sets in, many women are unprepared to manage retirement assets. Madrian said women have significantly lower scores than men when asked about financial concepts such as inflation, compound interest and diversification, and are more likely than men to answer simply: "I don't know."
One way Sen. Amy Klobuchar is hoping to help shore up women's financial security is with the Paycheck Fairness Act she is co-sponsoring . (Photo credit: Wikipedia)
So how can the retirement system help them?
The problem as Madrian posed it is that 401(k) plans are generally not annuitized and it's up to workers to figure out how to try to make the money last for a lifetime. By comparison, old-fashioned defined benefit pension plans, which fewer workers have today, guarantee workers lifetime payouts, and the default payout is a joint and survivor annuity. That meant that a surviving spouse—usually a woman–would continue to get lifetime payouts over her lifetime. But with the switch to defined contribution retirement plans—401(k)s, 403(b)s—there is no such guarantee in the vast majority of 401(k) plans.
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