Financial Literacy and the Early Withdrawal of Funds From Retirement Accounts

Abstract

This study examined the association between financial literacy and the decision to withdraw funds from different types of retirement accounts before retirement. Data from the 2012 and 2015 National Financial Capability Study were used to investigate if financial literacy may potentially influence the decision to dissave from funds already set aside for retirement. The results showed that lower financial literacy appeared to increase the likelihood to retract funds saved for retirement, across different types of retirement accounts. The importance of financial literacy persisted, even after controlling for income shocks to personal finances, the availability of precautionary savings as an alternative source of funding, and an extensive set of demographic variables.