Men, Women, and Life Annuities

Abstract

One of the results of the greater longevity of women is that annuity payments to women must continue over a longer span of years, on the average, than to men. If annuity accumulations are equal at retirement, this means that the monthly benefit under one-life annuity options is somewhat less for women than for men. In recent years, some women's groups have questioned this difference. This article discusses the issues involved and raises some of the implications for plan participants and employers. The life annuity is a unique payment mechanism designed to meet a serious human problem-how to get from retirement savings the largest possible monthly income without running the risk of outliving the income. No other financial arrangement meets the two objectives of (1) maximum income that (2) has no chance of being outlived. These objectives are crucial tests for retirement income security. Recently a controversy has arisen as to whether a third test for providing retirement income should be added. Some women's groups have suggested that annuitants owning identical amounts of retirement savings should receive the same monthly income from those savings regardless of the length of time over which the incomes are expected to be paid. At present, similarly situated men and women receive benefits that are actuarially equal. The specific question in the current controversy is whether women who elect one-life annuity options under an individual annuity contract should receive the same monthly benefits as men of the same age who have exactly the same annuity accumulation amount, although this means that on the average women would be paid a substantially larger total amount of money because of their longer lifetimes.