Late-career Unemployment Shocks, Pension Outcomes and Unemployment Insurance

Abstract

In response to unemployment shocks, older workers deplete their 401(k)s, particularly after the waiving of the early withdrawal penalty on unemployment-motivated withdrawals at age 55. This paper shows that Unemployment Insurance (UI) keeps older workers from depleting their 401(k) assets following job losses. UI also incentivizes older unemployed workers to delay claiming their Social Security (SS) benefits beyond the earliest age of eligibility, 62. Overall, UI enhances the retirement income of the individuals having a history of late-career layoffs by helping them preserve their 401(k) assets, the return on these assets and opt for a higher stream of SS benefits.