For example, if someone has retirement plan, that plan usually contains some triggers. It can be age (e.g. 65 years) or numer of working years (e.g. after 40 years of work). But in case of accident a person can become disabled or be fired. The most drastic example is death. In those situations retirement plan can provide some help - in-service withdrawal, a one-time or monthly payment.
Usually in-service withdrawal entails some consequences:
- it can lower payments after the triggering event - your pension will be lower,
- every withdrawal can be associated with some fee - you will receive lower in-service withdrawal,
- penalty tax can apply in case of withdrawal before reaching some age (it can be lower than triggering age).
- Mitchell, O. S., Utkus, S. P., & Yang, T. S. (2005). Turning workers into savers? Incentives, liquidity, and choice in 401 (k) plan design (No. w11726). National Bureau of Economic Research.
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