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The Impact of Leakages on 401(k)/IRA Assets

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  • Alicia H. Munnell
  • Anthony Webb

Abstract

The brief’s key findings are: *As 401(k)s and IRAs have become the dominant source of retirement saving, the potential for pre-retirement withdrawals – “leakages” – has grown. *Leakages occur via three channels: 1) in-service withdrawals for hardships or after age 59½; 2) cashouts when individuals leave a job; and 3) loans. *Estimates indicate that about 1.5 percent of assets leaks out of 401(k)s/IRAs each year, reducing wealth at retirement by about 25 percent. *Given the size of leakages, it may be time to take steps to curtail them such as: *limiting hardship withdrawals to unpredictable events *raising the age for penalty-free withdrawals to better align with when people actually retire; and *closing down cashouts by requiring the money to stay in the 401(k) system or be rolled over into an IRA.

Suggested Citation

  • Alicia H. Munnell & Anthony Webb, 2015. "The Impact of Leakages on 401(k)/IRA Assets," Issues in Brief ib2015-2, Center for Retirement Research.
    • Handle: RePEc:crr:issbrf:ib2015-2
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    File URL: http://crr.bc.edu/briefs/the-impact-of-leakages-on-401kira-assets/
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