How a lack of emergency savings can endanger retirement Little or no emergency savings can lead to withdrawals from critically-important retirement accounts, according to financial experts. Knowing t

Didier Malagies • April 3, 2023


With more Baby Boomers in America approaching retirement age, preserving savings will be key to maintaining or improving the quality of life in a person’s later years.


However, since Americans already struggle to maintain enough savings to cover a $400 emergency expense, existing retirement accounts may be a tempting source to shore up cash. If these accounts are used in these scenarios, however, retirement prospects are put at further risk that is otherwise avoidable.

This is according to financial experts and new data from investment firm Voya Financial regarding retirement savings, discussed in a new piece published by MarketWatch.


“A lack of emergency savings puts your retirement at risk,” said Tom Armstrong, VP of customer analytics and insight and head of Voya’s Behavioral Finance Institute for Innovation. “It’s hard to save for the future when the buffer is not in place.”


According to Voya’s research, employees lacking adequate emergency savings are 30% more likely to decrease retirement contribution rates, 13 times more likely to take a hardship withdrawal from a retirement account like a 401K or IRA and 3 times more likely to take a loan from their retirement plan to cover expenses.


Like the advice offered by the CFPB in 2019 encouraging Americans to “start small and save up,” starting small with an emergency fund — such as through setting aside as little as 2% of a paycheck — could make a big difference for the future according to Armstrong.


Having adequate retirement savings uninterrupted by emergency expenses is critical for financial health, but recent data also indicates that not enough Americans are adequately saving while they still have reliable paychecks.


Add to that the potentially “crushing” realities of late-life care costs and ongoing concerns related to elder financial abuse, and the importance of dedicated buckets for retirement and emergency expenses become clearer.


For reverse mortgage professionals, loan originators often deal with situations in which people are either looking to shore up cash from previously-inaccessible home equity, or they’re looking to incorporate the historic levels of equity built up in recent years into a comprehensive retirement plan.



Still, reverse mortgage professionals are also seeing other realities with their clients aligning with the broader population, since retirement savings overall decreased by 10% in 2022.


This is one of the reasons why reverse mortgage lenders continue to see financial planners as a key referral partnership opportunity, with some lenders setting up dedicated divisions specifically to build out these kinds of relationships.




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