How 401(k)s Discriminate Against Women

401(k)s are set up so that participants will accumulate funds during their working lives and then purchase annuities with those funds to finance their retirement.  They could also actively manage their portfolios during retirement, but most experts agree that annuitizing produces more stable income security.

The annuity business is based on calculating life spans.  Since women live on average longer than men, they will collect annuities longer.  To compensate for making more payments to women, issuers of annuities lessen each payment to female retirees.

Vanguard’s annuity calculator allows a test of this.  Inputing a 65 year old male with $100,000 to spend produces a quotation for a single life fixed monthly annuity of $692.60. Changing the gender produces a new quotation of $633.67–8.5 percent less.

While this discrimination may make sense actuarially, it does not make human or social sense. We can safely assume that the monthly cost of living of women is not 8.5 percent less than that of men.

The formulas for determining traditional defined benefit pensions by law do not distinguish men from women.

James W. Russell

2 thoughts on “How 401(k)s Discriminate Against Women

  1. I think the piece above, on annuities, offers a good example of the malady we are dealing with in society.
    That is, it ought to be not only sensible and practical to expect a we’re-all-in-this-together attitude and approach to big social matters, but this shows that the thinking has not progressed enough in general, regarding gender (and other things such as taxes and pensions, to name a few), and is not conducive to fostering good overall social conhension, welfare, and security in old age. After all, in addition to ensuring equality of opportunity, it’s only basic human decency to offer the same in terms of earned benefits in retirement — even if we all have to give a little more. That’s what social life is all about. Again, making such distinctions, as mentioned in the piece above, may be practical from an accounting point of view, but it is impractical and anti-social from a real-life point of view. And these kinds of approached and policies are not only fractious to our society in general, but they are going to be counterproductive — even to the elite that promotes them — as they make our lives less secure, productive, and progressive — becaouse this is hurting the whole country. The current economic condition and deficit is another good example of that.

    By the way, in my most recent Social Security Statement, my projected benefit at retirement has actually decreased by about $200 — for no apparent reason, I guess, than that we are all experiencing a loss in our standard of living and future prospects — due to the mind-set that leads to unfair discrimination in annuity payouts, tax cuts and deficits, and profit maximizing for certain groups who invest overseas — from the abundant unearned income from tax cuts — even as they meltdown Wall Street and take a big Welfare “redistribution” handout from the rest of us…

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