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May 15, 2024 | Rob Crothers, KC Boas
A buffer can help protect retirement savings
Our research is clear: when people have a liquid savings pot to help with immediate expenses, they are less likely to raid their 401(k).
Tools empower saving habits
Saving for the short term doesn’t have to cannibalize the long term (and vice versa). In fact, it can be the opposite – particularly when workers have tools to manage financial goals now and in the future.
Timing is key
We found that those with emergency savings were over 70% more likely to contribute to their retirement plan. Combined with auto-features and behavioral nudges, the effect is powerful.
The passage of SECURE 2.0 brought new in-plan emergency savings solutions. What have the past five years of research taught us about the connection between short-term and long-term financial security? And how can 401(k) plans benefit from lessons learned?
It was the shot heard round the financial security world. In 2017, a Federal Reserve report found that four in 10 Americans couldn’t cover an unexpected $400 expense.1 (Fig. 1) In the years that followed, several organizations – including BlackRock’s Emergency Savings Initiative – mobilized to identify the tools and opportunities people need to be able to set aside money for the future.
|
Group |
% with a savings buffer <$400 |
|
All Americans |
39% |
|
Low-to-moderate income (LMI) households |
58% |
|
Hispanic LMI households |
70% |
|
Black LMI households |
72% |
Sources: Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2017, 2018 and Commonwealth, Addressing Inequity.
Today, it’s widely acknowledged that having a liquid savings buffer can help individuals stay on track for longer-term retirement saving. After all, it’s hard to save for tomorrow if you’re worried about making ends meet today. The pandemic made that especially clear, and it’s something policymakers are taking seriously, as evidenced by the inclusion of the Emergency Savings Act of 2022 in SECURE 2.0 – which allows for in-plan emergency savings programs, as well as an employer match on workers’ emergency savings contributions.
With the availability of new in-plan emergency savings solutions, we wanted to know:
For more insight into what we found out about the correlation between short-term and long-term savings, download the paper below to read on.
BlackRock worked with the Bipartisan Policy Center to lift the veil on how to optimize retirement income – and the role policymakers have to play in advancing financial security.
Our report identifies areas where we can convert challenges into opportunity given cracks in the system.
1 Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2017, 2018
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