An appliance dies. The tires on the family car have become dangerously bald. That nagging toothache results in a root canal.
All of these are among life’s annoyances. But they can spell real financial disaster for too many American households.
More than half of American households (63 percent) can’t access enough cash to cover a $500 financial emergency such as an unexpected car repair or an emergency visit from the plumber, according to a Bankrate.com survey.
And that problem isn’t limited to those who are on the low end of the earnings scale. Bankrate found that half of those with annual salaries of $75,000 and above would be searching the sofa cushions for spare change in the event of a financial emergency.
The Federal Reserve painted an even more dire picture of Americans’ financial emergency preparedness. The Fed found that nearly half of American households didn’t even have enough resources to pay an unexpected $400 expense.
When the unplanned becomes an unwelcome reality, where do people find the money to pay the bill? Some charge up their credit cards, some turn to payday lenders and some even raid their retirement savings accounts.
LIMRA Secure Retirement Institute found that workers are interested in another option to creating their own rainy day funds. Workers and employers are interested in establishing an automatic emergency savings account that works alongside a workplace defined contribution (DC) plan.
Harvard University professor David Laibson spoke at the 2016 Retirement Industry Conference and proposed setting up an automatic emergency savings account that could be funded up to a specific amount.
After the amount was reached, the money automatically would go into a retirement savings plan. This would be a way to help Americans fund financial emergencies and prevent them from withdrawing money from their retirement accounts.
LIMRA SRI’s study finds that two-thirds of workers are interested in having access to an automatic emergency savings account. The report also finds 89 percent of employers are interested in offering the account, with larger employers more likely to be very interested.
With Americans continuing to face the challenge of not saving enough money to cover the cost of a burst pipe, let alone saving for a decades-long retirement, any vehicle that helps them to be more financially secure is welcome news.
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com.
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