More than one quarter of the 800,000 federal employees who were affected by the federal government shutdown withdrew money from their retirement funds to help make it through the 35 days in which they did not see a paycheck, according to a Prudential study.
In addition, four in 10 of these federal workers borrowed money from family or friends, while 20 percent took out a bank loan to help tide them over.
The study results underscored the need for workers of all types to have an emergency savings account, or to add more funds to an existing account, said Jill Perlin, vice president of Prudential’s advanced markets group.
Perlin was not surprised at the percentage of workers who took money from their retirement accounts.
“Besides your home, your retirement nest egg is generally your largest single asset,” Perlin told InsuranceNewsNet. “So, unfortunately, it becomes the most obvious place for people to go in a situation like this. And then what happens is, you lose that compounding, that tax deferral, that growth that we’ve seen over so many years. When you take that money out, it’s startling what that effect can be over the longer term.”
Not all government workers were affected equally by the shutdown, the Prudential study showed.
Fifty-nine percent of survey respondents who self-identified as caregivers said they were “much more stressed” by the government shutdown, compared with 45 percent of non-caregivers. Caregivers were defined as someone regularly providing care and support for a child with special needs, or a sick, elderly or disabled member of their family.
Also, caregivers were more likely than non-caregivers, by an average of about 10 percentage points in each case, to have seen their household income drop by at least half during the shutdown, to see their debt go up, to miss a mortgage or rent payment, to borrow from their retirement savings, or to fall behind on their student loans.
Fifty-six percent of Hispanics and 53 percent of blacks had emergency savings of $1,000 or more, versus 64 percent of whites. Thirty-two percent of black respondents used all their emergency savings during the shutdown, versus 25 percent of whites and 21 percent of Hispanics.
Women also were less likely to have an emergency savings account of $1,000 or more heading into the shutdown (53 percent, versus 68 percent of men), and were more likely to have borrowed from family or friends during the shutdown (46 percent, versus 33 percent of men).
But although so many workers reported financial hardship as a result of the shutdown, Perlin said she believes the effects will be short-lived now that everyone has returned to work.
“Once people can get back on their feet, if they can get back to where they are putting money back into their plan again and they see their account balance going back up, I think they will feel like it’s less overwhelming than when they were furloughed,” she said.
“I think people will be able to rebound.”
The silver lining in this scenario, the study found, is that workers are more aware of the importance of having an emergency fund.
Fifty-two percent of the federal workers and spouses who were surveyed said they plan to add more money to their existing emergency funds. Ten percent who don’t have emergency savings funds plan to start them.
Advisors also can learn something from the shutdown, Perlin said.
“Stay in touch with your clients; ask ‘How are you doing? Is there something going on in your life that we need to make sure we’re taking care of?’”
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 [email protected]. Follow her on Twitter @INNsusan.
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