Economic hurdles have weighed heavily on the minds of workers, as three in four list the current cost of living as a main financial stressor in a new Fidelity Investments study.
Feeling pulled between rising expenses and different financial priorities, like paying down debt and spending on healthcare needs, workers are struggling to save adequately for emergencies—no matter its size.
“People often think emergency savings is meant for big, unexpected events – but for many workers, it’s everyday expenses, such as replacing a broken phone or getting new tires, that can throw their budget off,” said Kirsten Hunter-Peterson, vice president of Workplace Thought Leadership at Fidelity Investments, in a statement. “When people have a way to cover those costs, they’re less stressed, more focused, and better able to plan for the future.”
Without these short-term savings to cover an emergency, many turn to their retirement accounts to cover the financial blow, Fidelity reports. The findings show that as of 2024, nearly 5% of employees have taken a hardship withdrawal from their retirement account. While a small figure, the number is an increase from roughly 2% in 2018.
Fidelity’s latest findings are especially prevalent in today’s environment, as the impending government shutdown could force public sector workers to withdraw from their own retirement savings to afford daily expenses.
Some lawmakers have even introduced legislation that would offset the financial burden associated with retirement plan withdrawals. Rep. Don Beyer (D-VA) on Oct. 3 introduced “The Emergency Relief for Federal Workers Act,” a piece of legislation that would remove penalties for federal employees who make hardship withdrawals from their Thrift Savings Plan (TSP) to pay bills during the shutdown.
Financial stress isn’t just harmful to employees and their families, Fidelity notes—it has its impacts on employers as well. Anxiety due to finances is a leading distractor in the workplace, and one that can prove expensive. According to the research, U.S. employers lose an estimated $183 billion due to a lack of productivity stemming from financial stress.
A greater number of plan sponsors are offering the rainy-day accounts as an added feature to workplace benefits, as more identify its impact to workers and as legislation expands accessibility for emergency savings accounts (ESAs). A provision in SECURE 2.0 legislation amended ERISA to authorize the establishment of pension-linked ESAs (PLESAs), where plan sponsors can make employee contributions to the accounts through payroll deductions while matching contributions to linked retirement plans.
Participating employees would be able to withdraw funds in their PLESAs without facing penalties.
“Emergency savings isn’t just a nice perk, it’s something employees truly need,” said Emily Kolle, vice president and head of Fidelity Goal Booster, the financial service provider’s emergency savings platform. “Having an effective way to handle everyday financial surprises can make a real difference on an employee’s financial wellness and in how they show up at work.”