Practice Management

Emergency savings: bridging the gap between short and long-term saving

Aerial view of an individual walking on a paved path, symbolizing the journey of retirement and the need for emergency savings.
Feb 03, 2025|ByBlackRock Retirement Perspectives

Key points

  • 01

    Many lack emergency savings, impacting financial security

    37% of Americans don’t have $400 in liquid savings, with the percentage increasing to 58% for women and 72% for Black households. A lack of emergency savings can negatively impact an individual’s ability to save for retirement – those with inadequate emergency funds are 13 times more likely to take a hardship withdrawal from their 401(k).

  • 02

    Emergency savings solutions are building momentum

    65% of employees think employers should be doing more to increase employee financial security. Nearly 3 in 4 workers would participate in an emergency savings program if offered by their employer. Several large employers have started offering workplace emergency savings solutions and showcasing positive results.

  • 03

    Secure 2.0 provided new savings opportunities via 401(k)s

    Two new Secure 2.0 provisions went into effect in January 2024, introducing ways for participants to build emergency savings and for employers to offer solutions. Employees can make penalty-free withdrawals from their retirement plan of up to $1,000 and employers can provide a standardized in-plan emergency savings solution.

Understanding the problem

37% of Americans don’t have $400 in liquid savings. That percentage increases for women to 58% and for Black households to 72%.1

And where there’s a short-term financial stability problem, long-term financial stability problems aren’t far behind. BlackRock’s Emergency Savings Initiative found that workers with inadequate emergency funds are 13 times more likely to take a hardship withdrawal from their 401(k)s. The good news is, not only do 72% of workers say they would participate in an emergency savings program2, but workers with emergency savings are also 70% more likely to contribute to their company-sponsored retirement plan.3

In our series with BlackRock Emergency Savings Initiative and Commonwealth, we examine this emergency savings benefit – the why, the how, they who.

Introduction to Emergency Savings Solutions

Today, there are two main types of emergency savings solutions: in-plan and out-of-plan. In our overview of the emergency savings landscape, we look at:

  • Comparing in-plan and out-of-plan solutions, and what employers may want to consider when selecting one or the other: Does it matter that participants have immediate liquidity? That it’s connected to a retirement plan? That it is eligible for auto-enrollment?
  • Incentive structures, including rewards and matching: 87% of workers say they would participate in an emergency savings program if an employer match was offered.4
  • Awareness and engagement strategies, such as targeted communications and peer-to-peer messaging.
  • Demographic data in terms of understanding factors such as the frequency of hardship withdrawals and retirement participation.
  • Two Secure 2.0 provisions allowing employees to manage their emergency expenses and savings in tandem with their retirement savings.

Why it matters

It is projected that by 2026 more than 40% of plan sponsors will offer an emergency savings solution to their employees.5 Many large employers already offer one today and have seen positive results. UPS, for example, found that employees were 2x as likely to increase contribution to their retirement account if participating in the emergency savings program 6, and ADP saw a 3.5x increase in monthly average number of new users.7

With the growing focus on financial wellness and large corporations adopting emergency savings solutions, we expect more and more plan sponsors to express interest. For advisors, it’s an opportunity to build meaningful relationships with sponsors in various stages of adopting a solution.

To uncover more insights and ways to evaluate emergency savings solutions, be sure to read the full paper. Leverage our presentation in conversations with plan sponsor clients.