How Does Dipping into Your Pension Affect Your Retirement Wealth?
Policy Brief No. 22/2001
26 Pages Posted: 25 Apr 2011
Date Written: August 1, 2001
Although pensions, both public and private, are intended to provide income during retirement, a growing number of American workers receive part or all their employer-provided pensions in the form of a cash settlement, called a lump-sum distribution, when they change jobs. They have many choices of what to do with that money: for example, they can roll it over into an Individual Retirement Account (IRA), spend the money or pay or debt, transfer it to the pension plan of a new employer, or even leave the money with the old employer's pension plan. Policymakers are concerned that workers who spend their pension distributions on current consumption are depriving themselves of the financial resources they will need for retirement. This policy brief describes some results from an ongoing study on the long-term economic consequences of lump-sum pension distributions. The study uses detailed information on employment histories, pensions, and wealth from Wave 1 (1992) of the Health and Retirement Study (HRS), a nationally representative survey of individuals between the ages of 41 and 61.
JEL Classification: G23, G28
Suggested Citation: Suggested Citation