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Pension Lump-Sum Distributions: Do Boomers Take Them or Save Them?

Boomers are facing a retirement system different from the one their parents knew. A greater proportion of the previous generation's workers were covered by defined benefit (DB) pension plans than is likely to be the case for boomers in retirement. Boomers will probably have to save more on their own to equal the pension benefits that their parents earned.

This AARP Public Policy Institute Data Digest examines what boomers (born between 1946 and 1965), pre-boomers (from 1939 to1945) and older persons (1938 and earlier) do with their pension funds upon job separation, what factors and financial attributes affect their decisions to roll over or cash out lump-sum distributions (LSDs), and the implications of these decisions for retirement income security. Rollover behavior of women and minorities is also analyzed.

The results suggest some cause for concern because more than half of all LSD recipients spend their funds instead of rolling them over into another plan or an IRA. Among those spending their LSDs, the majority use them to pay off some kind of debt.

The study also revealed that:

  • Younger boomers are somewhat more likely to roll over LSDs than older boomers.
  • Rollovers increased for all persons with higher education and family income.
  • Minorities are much less likely than whites to have received an LSD and are even less likely to have rolled over their funds.
  • While race is a significant factor in determining cash-out or rollover behavior, gender is not.

This analysis is based on 2003 data from the Survey of Income and Program Participation (SIPP) 2001 released by the Census Bureau in 2005. (14 pages)

Pub ID: DD144

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Data Digest (PDF)

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