54 percent of employees have dipped into retirement savings for emergencies
As the new year approaches, money worries remain top of mind for many Americans. In fact, a survey from Ally Financial recently found that 45 percent of Americans are concerned about their personal finances.
That’s due to a number of factors, many of which are related to the economy, such as fluctuations in interest rates, the cost of living, and rising prices. Other data from the survey points to the fact that Americans are most worried about their financial future, including not having enough money to retire (68 percent), keeping up with the cost of living (56 percent), and managing their debt levels (45 percent).
Where people may have previously put up and shut up about their money worries, things are changing. Now, 72 percent say money is no longer a taboo subject. That’s to be welcomed, because it paves the way for open conversations about finances.
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That willingness to talk ties into the fact that people are now more likely to seek emotional support around managing their finances. Perhaps unsurprisingly, Generation Z is the most likely to do this at 55 percent. Millennials come in at 42 percent, 33 percent of Gen X will look for support, along with 22 percent of Boomers.
Retirement readiness
With over a third of the U.S. essential workforce aged 50 years and older, almost 15 percent are over 60. That’s a lot of people, and they tend to have particular financial concerns. A new Retirement Readiness Report from Betterment at Work found that 62 percent of workers say their finances cause them moderate to significant anxiety.
Their top financial concerns are inflation and increased cost of living (62 percent), credit card debt (34 percent), housing costs (31 percent), and medical bills or debt (25 percent). Only 20 percent reported feeling “very financially stable”.
Fears around job losses and labor market instability are causing Americans to shore up their reserves. This year, the report found that 63 percent of respondents have an emergency fund, up from 52 percent in 2023.
For the 37 percent of respondents who don’t currently have an emergency fund, the primary reason for 86 percent is that they simply can’t afford one. And for those who do have emergency funds, 47 percent have tapped into them in the past 12 months to meet unexpected expenses.
Perhaps what is more worrying is a change in behavioral trends when it comes to covering emergency expenses. Now, 54 percent say they use their retirement account for emergency expenses.
“It’s concerning to see that 54 percent of respondents tapped their retirement account for emergency financial needs, even though 63 percent reported that they have emergency savings,” says Mindy Yu, director of investing at Betterment at Work.
“This tells us that workers’ current emergency savings might not be sufficient, or that they may be unaware of the consequences of early retirement account withdrawals. We always recommend having at least six months of expenses saved for a solid financial safety net.
“That may not be possible for everyone, but saving as much as you can, even if it’s only a small amount of each paycheck, is important to help mitigate the need to use retirement savings, which can set you back for retirement and come with heavy fees.”
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Worrying about money can cause significant stress. From sleepless nights, difficulty concentrating at work, it can also affect your relationships.
Over half of respondents to the Retirement Readiness Report said that feelings of financial anxiety have made it difficult for them to focus or perform their best at work this year. Nearly one in five respondents says that financial anxiety impacts their ability to do their jobs “all the time.”
It is no surprise then that many Americans are looking to their employers for help. One survey found that nearly three quarters would accept a job with a slightly lower salary if it offered better healthcare and medical coverage, including lower premiums and out-of-pocket costs.
The survey also found that as a result of this, 51 percent say health care costs have a severe or major impact on their ability to save for retirement.
So what can be done? There are a couple of routes you can take as an employee in order to earn more money. Firstly, you can look for a new role. In a salary negotiation for a new job, you have a better chance of not only securing more money, but also better overall compensation.
The second thing you can do is to either discuss this in a review meeting, or ask your manager for a meeting to discuss your compensation. While you may not come out with a large percentage increase in your take-home pay, asking for bigger employer 401(k) contributions or better health insurance can have big impacts on your disposable income.