More Detail on Lump-Sum Distributions of Workers Who Have Left a Job, 2006

This paper examines workers' decisions to take a lump-sum distribution - a one-time payment - from an employment-based retirement plan when changing jobs, while remaining in the labor force. It builds on earlier, top-line data from the 2004 Survey of Income and Program Participation (SIPP). This study provides estimates of the percentage of workers changing jobs and leaving their assets in their former employers' plan, compares the standard of living of individuals age 55 or older with that of their early 50s, and assesses how the current near-elderly and elderly have fared after making a lump-sum decision. As of 2006, 16.2 million workers had taken a lump-sum distribution of their retirement plan assets. The average amount of these distributions was $32,219 and the median (mid-point) amount was $10,000. Almost half of these distributions were for less than $10,000, and 22.7 percent were received from 2004 through 2006. Just over 55 percent went to individuals age 40 or younger, 83.7 percent were received by whites, and 53.9 percent went to females. Recipients ages 61-64 had the highest average amount of any age category, and the average distribution was significantly higher for males than for females. Through 2006, almost half (47.3 percent) of those taking a lump-sum distribution used at least some portion of the money for tax-qualified savings, while 16.9 percent used at least some portion of it for consumption. The other most prevalent uses were buying a home, paying off debt, or starting a business. At least some portion of a lump-sum distribution is more likely to go for tax-qualified savings if the distribution is larger, the recipient is older, male or white