The effect of disability income on retirement decisions and wealth

ABSTRACT

Using the 2008 National Longitudinal Survey of Youth, this study examines the impact of receiving disability income on a respondent’s decision to calculate a retirement income need, use tax-advantaged accounts and accumulate retirement wealth. Respondents who received disability income were 4.4% less likely to report calculating a retirement income need and 4.5% less likely to report using a tax-advantaged account, compared to a reference group of respondents who did not receive disability income. Respondents who received disability income also accumulated 41% less retirement wealth compared to the same reference group.

KEYWORDS:

• Disability income
• retirement income
• tax-advantaged account
• retirement wealth

JEL CLASSIFICATION:

• D1
• D14
• D31
• D91
• J26

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Excluding rollovers.

² It is important to note that a risk-averse expected utility theory consumer would choose partial insurance coverage if the load is positive (Mossin 1968).

³ Respondents were surveyed between January 2008 and March 2009 for the 2008 administration of the NLSY79.

⁴ The question specifically states: ‘Do you [or] [Spouse/partner’s name] have any money in IRAs, Keoghs, variable annuities, 529 plans, or other tax-advantaged accounts?’.

⁵ In a table not shown, respondents with disability accumulated $49,000 less retirement wealth relative to those with no reported disability.