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The Retirement Income of the Prime Working Aged

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Working Paper Number SEHSD-WP2022-21 / SIPP-WP#304


A growing literature in fiscal sociology and public policy research identifies a “hidden welfare state”: a set of tax exemptions with social welfare objectives available to those with taxable income and the knowledge of how to use these exemptions. However, the distributional impact of the hidden welfare state is understudied, perhaps because it is poorly captured by household surveys. In particular, surveys fail to capture a large share of income from pensions and retirement accounts. This paper examines pension and retirement account withdrawals among prime working age persons—those aged 25-54—by linking the 2018 Survey of Income and Program Participation (SIPP) with respondents’ restricted-access tax records. The analysis shows that the SIPP captures only 30.3 percent of total pension and retirement account income. Using tax records and comparing this income to program income—the “visible” welfare state—shows that pensions and retirement accounts are a larger source of income for the prime working aged and this income is more common among higher earners. Moreover, there is little overlap among persons receiving program income and retirement income. Overall, early withdrawals are common, not confined to specific groups, and poorly captured by current survey methods.


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