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Early Withdrawals From Retirement Accounts During The Great Recession

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Contemporary Economic Policy

Published online on

Abstract

Early withdrawals from retirement accounts are a double‐edged sword, because withdrawals reduce retirement resources, but they also allow individuals to smooth consumption when they experience demographic and economic shocks. Using tax data, we show that preretirement withdrawals increased between 2004 and 2010, especially after 2007, but early withdrawal rates are substantial (relative to new contributions) in all those years. Early withdrawal events are strongly correlated with shocks to income and marital status, and lower‐income taxpayers are more likely to experience the types of shocks associated with early withdrawals and more likely to have a taxable withdrawal when they experience a given shock. (JEL G23, H24, H31)