The events of 2020 have exposed pre-existing fault lines in the U.S. savings system, from emergency savings to longer-term goals like saving for retirement.
In the face of these pressing challenges, BlackRock convened some of the world’s leading thinkers and decision-makers to explore how to build on what’s working and reimagine what’s not.
The message was clear: making the U.S. savings system more secure and inclusive will require fresh thinking and bold action.
1. The need to help build short term savings
Even before the pandemic, almost 40% of Americans didn’t have enough short-term savings put away to navigate a $400 emergency.i That means an unexpected illness, job loss, or even car trouble could spell financial ruin.
In the absence of adequate short-term savings, retirement accounts have increasingly become de-facto emergency savings accounts. IRS researchers found that 40 cents of each dollar that goes into a 401(k) plan was withdrawn prior to retirement.ii This kind of 401(k) leakage, as well as the challenges of managing a household, student, and healthcare-related debt, act as a significant drag on financial well-being and the ability to save for the long-term.
2. Highlighting innovative ways to tackle retirement security
As workers change jobs, their most important savings decisions are made during exchanges with HR officers managing their onboarding. The details, options, and implications of available long-term savings plans are often abstract and intangible in the eyes of the individual worker.
Take decumulation: For decades, the conversation around retirement has centered on increasing the assets that workers put into a retirement plan. Much less attention has been paid to helping retirees manage their withdrawals so they have a steady income that’s not depleted too quickly over the course of their retirement.
This is a complex challenge, and there’s little in the way of guidance or effective products and services to help people answer important questions like how much income they’ll need each month in retirement, how much they need to save now to make that possible, and how factors like student debt or a mortgage can affect that calculus.
Retirees should be able to spend on a consistent, predictable basis without fear of running out of money or market losses curtailing their standard of living. We need to reorient our thinking: If we shy away from complexity, that just leaves it to individuals to face on their own. It’s our job to tackle that complexity by designing plans that make things simpler and easier.
3. Recognizing limited access to savings plans
Uneven access to high-quality liquid savings accounts, and to retirement plans, contributes significantly to the shaky state of Americans’ savings. Among low-wage workers, 43% do not have a savings account.iii Roughly 55 million Americans working in the private sector do not have access to a retirement plan through their employer.iv
This lack of access is not evenly distributed by race, age, or sex. A 2013 study found that only 54% of black and Asian employees and 38% of Latinx employees work for an employer that sponsors a retirement plan, compared to 62% of white employees.v
This poses a particular challenge for younger workers, two-thirds of whom have no retirement savings. Only 1 in 20 working millennials are currently saving adequately for retirement.vi
Even among those with access to a savings account and retirement plan through their employer, many don’t meaningfully participate. Nearly 25% of workers with access to a retirement savings plan are not currently making contributions; for millennials, the rate is almost 50%.vii
Our path going forward
The BlackRock Savings Summit left little doubt about the link between helping workers establish a foundation of emergency savings and protecting the funds they put away for the long-term.
Every American should be afforded the opportunity and support they need to save at all stages of their career, and retirees should be able to spend on a consistent, predictable basis.
We know that today’s savings system leaves too many Americans on the outside looking in. While economic challenges and their consequences may not be evenly distributed, we all pay a price for this inequality in the form of foregone growth and resilience.
The consensus view from Summit participants is that we need to think differently and act boldly to set ambitious goals that the industry and policymakers can rally behind. Because the magnitude of what’s at stake demands that we interpret this moment of crisis as an opportunity to accelerate progress.
i. Federal Reserve, “Report on the Economic Well-Being of U.S. Households in 2018”
ii. The Wall Street Journal, “Employers Help Workers Build House-hold Emergency Funds,” 2019
iii. Commonwealth, “Emergency Savings: A Life Jacket in Rough Seas,” 2020
iv. CNBC, “More states set to offer retirement plans,” 2016
v. NIRS, “Race and Retirement Insecurity in the United States,” 2013
vi. NIRS, “Millennials and Retirement: Already Falling Short,” 2018
vii. Bureau of Labor Statistics, National Compensation Survey, 2019
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