Early Withdrawal of Retirement Savings After a Severe Health Shock: Evidence from Linked Administrative Data

Thomas Longden () and Maryam Naghsh Nejad ()
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Thomas Longden: University of Western Sydney
Maryam Naghsh Nejad: University of Technology, Sydney

No 17964, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines how individuals respond financially to severe health shocks by analyzing early withdrawals from retirement savings following the initiation of cancer treatment (chemotherapy). Using comprehensive administrative data from Australia that link health, tax, and demographic records, we study behavior in a setting with universal health coverage and a mandatory retirement savings scheme that permits early access under hardship provisions. We find that early withdrawals increase significantly in the year of and the year after treatment, particularly among individuals who lose income or receive a terminal diagnosis. To interpret these patterns, we extend a dynamic Grossman-style model of health capital to account for survival probabilities and institutional features of the retirement system. Our findings show that health shocks prompt individuals to draw down retirement savings as a form of self-insurance, revealing how health risks interact with retirement policy. These results inform ongoing debates about the flexibility and adequacy of retirement savings systems.

Keywords: early retirement withdrawals; health shocks; income loss; administrative data; life-cycle savings (search for similar items in EconPapers)
JEL-codes: D14 D15 H55 I10 J32 (search for similar items in EconPapers)
Date: 2025-06
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