Research released from Empower this week shows why employers may want to jump on offering the new SECURE 2.0-enabled emergency savings accounts program—as 37% of Americans can’t afford an emergency expense over $400.
And almost a quarter (21%) have no emergency savings at all, according to the new Empower research.
“Not all surprises are good, and people know it. The study suggests financial precarity at a time when household finances may be stretched due to rising prices and inflation,” said Rebecca Rickert, head of communications at Empower. “Life happens, and people are stressed about the surprise expenses that could tip them off-balance.”
For 62%, having a dedicated emergency savings account is a priority, yet nearly half (47%) of people surveyed say regular monthly expenses are too high for them to put money away.
In fact, the survey found 1 in 4 (25%) people dipped into emergency savings to cover basic living expenses in the past year. The median emergency savings for Americans is $600, and there is a large gender savings gap: men have a median emergency savings balance of $1,000 compared to $500 for women.
Americans agree that being able to weather unexpected financial needs creates a sense of Financial Happiness, and many are taking steps to plan for the unplanned.
Despite economic hardships, nearly half (43%) of Americans (and 51% of Baby Boomers) have contributed to their rainy-day fund within the past year – though just 14% contribute regularly. There may be a silver lining: 34% believe they could handle any emergency expenses that arise.
More key findings
- Ready or not: Over half (54%) report stressing about paying if and when disaster strikes, with Millennials (60%) worrying the most.
- Feeling the squeeze: Rising prices (57%) are keeping Americans from building up their emergency funds.
- Emergencies of all sizes: People have had to dip into their funds for car expenses (21%), home repairs (21%), medical expenses (19%), debt payments (17%), and job loss (10%).
- Debt dilemma: Paying down debt is a higher priority than saving for an emergency for 57% of Americans.
- Cash stash: 30% of adults keep their emergency nest egg in cash and many are looking into a high-yield savings account to help their money grow (33%).
Visit The Currency to read Empower’s full research report, “In Case of Emergency.”
ESAs get boost in 2024
ESAs have seen increased attention this year, thanks in large part a provision in SECURE 2.0 that amended ERISA to authorize the establishment of pension-linked emergency savings accounts. The short-term savings accounts are established and maintained as part of an individual’s retirement savings plan, such as a 401(k) plan.
Employers may automatically enroll their employees into PLESAs, make employee contributions to the PLESAs through payroll deductions and make matching employer contributions to the linked retirement plans. Participating employees can easily withdraw funds saved in their PLESA without the penalties of drawing from retirement savings. Employers may set a limit of up to $2,500 for contributions. The PLESA feature is available for plan years beginning after Dec. 31, 2023.
SEE ALSO:
• Voya Partners With SecureSave to Offer Emergency Savings Accounts
• HSA Bank Adds Emergency Savings Account Solution
• Employers See Positive Returns When Offering Emergency Savings Benefits
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.