Other Savings Approaches

Background

Every year, 60 percent of American households experience at least one financial shock due to unforeseen expenses at a median cost of $2,000. While most families expect to cover these costs using their savings, about 41 percent of households don’t have enough saved to cover that high a loss. As a result, 55 percent of families who deal with a financial shock struggle to make ends meet, sometimes for months afterward. To make matters worse, a Federal Reserve survey found that 47 percent of Americans could not raise even $400 in an emergency and would have to borrow the money, sell something, or just not cover the expense at all.

Households across all income levels have insufficient emergency savings. While lower income individuals tend to save the least as a percentage of their income, many middle- and upper-income households struggle to save as well. The situation is even more serious for older Americans. While they are more likely than younger people to have some level of savings, older people have fewer working years to rebuild their savings after a financial shock. And when they reach retirement, older Americans are more likely to be on a fixed income, so a shock could trigger a continuing crisis. Having a pool of emergency savings in addition to retirement savings could reinforce the financial resilience of people and families of any age.

For all of these reasons, households need the ability to build emergency savings on an ongoing basis. Among other innovative, promising approaches is automatic enrollment in a plan which deposits payroll deductions into an easily accessible account. A renewed emphasis on enabling people to concurrently save for both retirement and emergencies is an essential part of financial resilience.

Other Savings Approaches: Policy

Private accounts and Social Security

In this policy: Federal

Measures to increase individuals’ retirement savings should be encouraged. Such savings should be in addition to, not instead of (as characterized by carve-out or privatized accounts), the guaranteed benefits provided by Social Security. AARP opposes any private accounts carved out of Social Security.

Non-retirement saving

In this policy: FederalState

Consumers should have a range of safe, reliable, affordable, and customizable emergency and short-term savings options, including through payroll deduction or direct debit.

Policymakers should eliminate administrative and policy barriers to employers offering employees access to automatic enrollment into multiple savings accounts – both retirement and non-retirement.

States should change their laws to allow banks, credit unions and other financial institutions to offer prize-linked savings opportunities.