An Investigation on Early Voluntary Withdrawals from Individual Retirement Accounts: An Empirical Study on an Emerging Market

Early withdrawals from individual retirement accounts are one of the main problems of pension companies in both developed and emerging countries. The aim of this study is to identify the potential reasons behind decisions to withdraw early from the individual retirement system in Turkey. Using Cox proportional hazards model, we find that there is a significant negative relationship between financial literacy and withdrawal probability. Our results reveal that men and younger individuals are more likely to make an early withdrawal. We also find that individuals who experience liquidity constraints and income shocks tend to withdraw their contracts earlier. Further analysis suggests that the effect of variables remarkably changes among different subgroups. We believe that our findings will assist both pension managers and policymakers to design better retirement plans and to take steps to prevent voluntary withdrawals in the long term.