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Early Withdrawal of Retirement Savings After a Severe Health Shock: Evidence from Linked Administrative Data

Author

Listed:
  • Longden, Thomas

    (University of Western Sydney)

  • Naghsh Nejad, Maryam

    (University of Technology, Sydney)

Abstract

This paper examines how individuals respond financially to severe health shocks by analyzing early withdrawals from retirement savings following the initiation of cancer treatment (chemotherapy). Using comprehensive administrative data from Australia that link health, tax, and demographic records, we study behavior in a setting with universal health coverage and a mandatory retirement savings scheme that permits early access under hardship provisions. We find that early withdrawals increase significantly in the year of and the year after treatment, particularly among individuals who lose income or receive a terminal diagnosis. To interpret these patterns, we extend a dynamic Grossman-style model of health capital to account for survival probabilities and institutional features of the retirement system. Our findings show that health shocks prompt individuals to draw down retirement savings as a form of self-insurance, revealing how health risks interact with retirement policy. These results inform ongoing debates about the flexibility and adequacy of retirement savings systems.

Suggested Citation

  • Longden, Thomas & Naghsh Nejad, Maryam, 2025. "Early Withdrawal of Retirement Savings After a Severe Health Shock: Evidence from Linked Administrative Data," IZA Discussion Papers 17964, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17964
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    More about this item

    Keywords

    early retirement withdrawals; health shocks; income loss; administrative data; life-cycle savings;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I10 - Health, Education, and Welfare - - Health - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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