Policy Options for Cutting Retirement Leakages

April 9, 2016

Financial necessity is an important reason low-wage households are more likely to make pre-retirement withdrawals from their 401(k) plans.

However, an increase in the tax penalty on early withdrawals may increase rather than discourage withdrawals, and a prohibition on withdrawals may decrease contributions. To ensure that all households both contribute to retirement plans and remain invested, retirement policy should both mandate contributions and prohibit pre-retirement withdrawals. Finally, if households are prohibited from using retirement savings to buffer pre-retirement shocks, policy interventions will be required to increase the financial resilience of working-age households.

Authors: Teresa Ghilarducci, Bridget Fisher, Siavash Radpour, Anthony Webb
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