Does the Emergency Savings Gap Undermine Retirement Security?

Financial stress is taking a heavy toll on American workers, with 97% reporting financial strain and 71% experiencing moderate to extreme stress, according to a national survey commissioned by emergency savings provider SecureSave. Its report, “Financial Stress, Emergency Savings and the Impact on American Workers,” highlighted a growing crisis, as personal money issues bleed into the workplace, leading to weakened retirement readiness, increased absenteeism and strained employer-employee dynamics.

In fact, nearly half of U.S. workers either skipped or came close to skipping a necessary expense in the last 6 months due to a lack of emergency, SecureSave found.

The survey on which the report was based, which included 1,026 employed workers between the ages of 18 and 72, found many U.S. workers took actions that negatively affected their retirement savings in order to make ends meet in the short term. One-third (33%) of survey respondents made some kind of retirement savings-reducing decision. Almost one in five (18%) reduced their 401(k) contributions, and 6% stopped 401(k) contributions completely. Other reported events that had negative impacts on retirement savings included taking a loan from a retirement account and making an early withdrawal from an account (5% each).

Lack of Emergency Savings
These trade-offs appear to be driven by a lack of financial cushion, according to the SecureSave report. Nearly three out of 10 respondents (29%) reported having no emergency savings at all, with 20% reporting they had less than one month of cushion, and 23% said they had one to two months, according to the survey. Of respondents, 15% noted they have three to five months of emergency savings, while only 14% had at least six months.

Those with more emergency savings were less likely to negatively impact their retirement savings. In general, there is a strong positive correlation between the savings accumulated by Americans who leave their retirement accounts alone and their emergency savings. For survey respondents with at least six months of retirement savings, only 10% had made changes to their retirement savings, while for those with less than one month of emergency savings, 48% had made changes.

Employer Contributions to Emergency Savings Plans
Given the strong connection between emergency savings and financial stability, even modest interventions could have a substantial impact, according to the SecureSave report. An employer-sponsored emergency savings program could help reduce employee financial stress, leading to better outcomes in retirement readiness, productivity and retention.

For example, a $200 employer contribution to an emergency savings plan—provided to nearly one in three workers—could have a meaningful effect: According to SecureSave, this $200 contribution could, by providing additional funds for emergency use, improve the rate of absenteeism for hourly employees, which costs employers an average of $685 per employee each year.“Far too many hardworking Americans are living on the edge—just one unexpected expense away from financial disaster,” said Suze Orman, the co-founder of SecureSave, in the report. “Emergency savings accounts are a must. They give employers a real and affordable way to step up, show true care for their employees, and protect their own bottom line. When workers are financially secure, everyone wins.”