More workers are preserving retirement assets, study says

Furthermore, the study says, the percentage of lump-sum recipients whose most recent distribution went entirely for consumption was 9.2 percent for distributions received through 2006, compared with 22.7 percent for those who received distributions through 1993.

At the same time, however, the study also finds that about 60 percent of those who took a lump-sum distribution did not roll all of it into tax-qualified savings. While some of the assets were spent purely on consumption, some also was used for home purchases, starting a business, or paying down debt. This behavior varied significantly across retirement plan participants’ ages and the amount of the distribution, with individuals up to age 65 and those with higher balances more likely to roll over (preserve) their assets.The study also found:

• Through April 2006, about 16.2 million working-age Americans reported ever having received a lump-sum distribution from a retirement plan when changing jobs. The average amount of these distributions was $32,219 (in 2006 dollars) and the median (mid-point) amount was $10,000.
• For the most part, the amounts of lump-sum distributions were relatively small — just over 21 percent of the distributions were less than $2,500. Just over 16 percent were $50,000 or more. The rest of the distributions (about 63 percent) were between $2,500 and $50,000.

The study concludes that some individuals, particularly younger ones, do not understand or value the fact that a small amount of savings can make a significant impact on retirement assets over time, due to compound interest. “By cashing out even small amounts, younger participants are sacrificing a potentially important asset for their retirement,” the study says.

EBRI is a private, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. www.ebri.org.