Late-career unemployment shocks, pension outcomes and unemployment insurance

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 keeps older workers from depleting their 401(k) assets following job losses. Unemployment insurance also incentivizes older unemployed workers to delay claiming their Social Security benefits beyond the earliest age of eligibility, 62. Overall, unemployment insurance enhances the retirement income of the individuals having a history of late-career layoffs by helping them preserve their 401(k) assets, maintain the return on these assets and opt for a higher stream of Social Security benefits. (c) 2022 Elsevier B.V. All rights reserved.

Automated summary

This paper demonstrates that unemployment insurance prevents older workers from depleting their 401(k) assets after job loss. It also incentivizes older unemployed workers to delay claiming their Social Security benefits. Ultimately, unemployment insurance enhances retirement income for individuals with a history of late-career layoffs by preserving their 401(k) assets, maintaining returns, and increasing their Social Security benefits.