Emergency Savings Rates are Low, Retirement Anxiety is High

Most Americans are anxious about being able to retire comfortably.? It’s no wonder – few adults can barely afford a $400 emergency, let alone save adequately for retirement.? Despite the bleak outlook, employers can help workers improve their prospects for a more financially secure future.

An Empower survey found that nearly 2 in 5 (37%) of Americans can’t afford an unexpected expense over $400, and almost a quarter (21%), have no emergency savings at all.? The Empower survey results were cited in a recent BenefitsPro article .? Many financial experts recommend setting aside 3-6 months of living expenses in case of an unforeseen emergency, such as a job loss or illness.? Americans who have an emergency fund have accumulated savings of just $600, Empower found.? And 1 in 4 have tapped their emergency savings in the past year for:

• Car expenses (21%)
• Home repairs (21%)
• Medical expenses (19%)

Among the Empower survey respondents, 13% said they’d have to borrow from retirement savings to cover an emergency expense.? However, borrowing from a retirement account often comes with penalties and taxes.? Under SECURE 2.0, employers can offer employees two options for when financial emergencies arise:

• $1,000 annual benefit (to be repaid within 3 years) or
• Pension-Linked Emergency Savings Account (PLESA) option, which takes a small amount from paychecks (3%) and is capped at $2,500.? Employees contribute to PLESAs, which are matched by employers, through paycheck deductions, and they can withdraw funds once monthly as needed.

While many Americans find themselves unable to cover a financial emergency, they’re also concerned about their financial security in retirement.? Cited in a second BenefitsPro article , a report from the Schwartz Center for Economic Policy Analysis (SCEPA) at The New School for Social Research examined eight prominent surveys of American’s retirement situation, revealing wide-ranging findings on how people feel about their retirement.? For the most part, American adults are anxious about their so-called golden years—specifically, will they have enough to retire, and how long will their savings last?? The survey results show that while retirement stress is pervasive, the cause differs based on a person’s age, gender, economic and educational levels, and whether they are employed or retired.

According to the Schwartz report:

• Households aged 55-64 have a median retirement account balance of just $10,000, while even the more fortunate half of pre-retirement households have a median balance of only $134,000.? These balances are not nearly enough for a secure retirement.
• Households aged 65 and over have a median account balance of $0, and only 36.9% of workers in this older age bracket are saving in a retirement account.

Employers have an integral role to play in retirement readiness, including better communicating the benefits of saving in a workplace retirement plan, encouraging employees to contribute, and offering a company match to entice higher participation rates.? Financial literacy programs that focus on a holistic approach to financial wellness can also help improve retirement readiness by encouraging employees to contribute as much as they can to their 401(k) plans, or at least enough to receive matching contributions when offered. Barring a comprehensive overhaul of the American retirement system, employers must do all they can to help workers proactively save for a more financially secure future.