New Evidence on the Effect of Economic Shocks on Retirement Plan Withdrawals
RELAB WORKING PAPER
Using data from the Survey for Income and Program Participation (SIPP), this study investigates the relationship between withdrawals from 401(k) and IRA accounts and household level economic shocks such as job-loss, job change, divorce, and the onset of poor health.
Workers in low-wage households are more likely to withdraw from their accounts than those in middle and high income households, in part because they experience more shocks, and are more likely to withdraw, conditional on experiencing a shock. The above shocks are associated with about a fifth of all retirement account withdrawals and exacerbate pre-existing inequalities in financial preparation for retirement.