Retirement Savings and Emergency Savings - One Needs the Other

I am knee deep in scheduling and conducting 2nd quarter plan reviews with my 401k clients.  And what a 2nd quarter is was!  The end of the first quarter we were just hitting the bottom of the market, hope was in the air that COVID-19 would soon be behind us, and Congress was getting busy with stimulus and relief packages, particularly the CARES Act.  How did all this play out?
 
There will certainly be much written and researched about our current times in the years to come, but we are already able to see some interesting outcomes.  The Secure Retirement Institute just completed some research that showed American workers who lost their jobs or experienced a drop in income due to COVID-19 were at least twice as likely to take money from their retirement accounts as those who were not impacted.  It's a fact that you can’t choose whether or not you will be hit by a pandemic, but you can choose how you react.
 
However, not everyone who was affected tapped into their retirement savings in the 2nd quarter.  In fact, one group in the survey left their retirement accounts virtually untapped.  Who were these people?  The ones who had emergency savings set aside, particularly those who had set aside a year’s worth of expenses.  I would term these people “super savers’ to be able to have an entire year’s worth of expenses set aside, but beyond these folks, there is certainly room for improvement by others.
 
26% of workers acknowledged that they had less than 1 month’s worth of savings to cover expenses, and 48% report having only enough emergency savings to cover 3 months or less.  We need to help employees do better!  Tapping retirement savings to “get through today” has devastating effects on long term retirement preparedness.
 
What would be the easiest way to help employees prepare an Emergency Savings reserve?  The same way we help employees save for their retirement – through workplace deduction.  Having money deposited into an account that would serve employees in an emergency is the simplest and easiest way to help employees prepare for their next financial challenge.
 
If you are an employer who would like to learn more about how to help your employees set up and manage Emergency Accounts to better prepare them, please give me a call at your convenience.  I would love to show you how easy this can be.

Pete Welsh a/k/a 401kGuy