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Key Findings Details

At the Corner of Main and Wall Street: Family Pension Responses to Liquidity Change and Perceived Returns
Thomas Bridges and Frank Stafford
WP 2012-282

  • Analyzing data from the Panel Study of Income Dynamics (PSID) during 1999-2009, we find that participation in and contributions to defined contribution pensions rose prior to the recessions of 2001-2002 and 2008-2009, and then declined during the recessions.
  • During both recessions, families were more likely to withdraw funds from their pension, annuity or IRA. Moreover, the number of families withdrawing 60 percent or more of their pensions saw the biggest increase.
  • Low wealth, low income and out-of-pocket medical expenses were predictors of reduced contributions and of overall pension withdrawals by families.
  • Mortgage distress measures also predicted pension fund withdrawals.
  • While tapping into pension funds can stabilize a family’s consumption during periods of financial distress, this may work to limit long-term wealth accumulation for retirement.

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