Pre-Retirement Lump-Sum Pension Distributions and Retirement Income Security: Evidence from the Health and Retirement Study

Abstract

This paper uses the Health and Retirement Study to examine the extent of retirement wealth erosion from pre-retirement lump-sum pension distributions. There is little evidence that spent distributions have resulted in significant pension leakage. If spent distributions had been rolled over into a tax-qualified plan, they would have represented 5-11 percent of pension and Social Security wealth for the median household thai spent a distribution. However, one-quarter of the households that spent distributions—which is 2.25 percent of all households age 51 to 61—could have increased retirement wealth by 25 percent or more had the distributions been rolled over.