4 Ways an Emergency Savings Account Can Stop You From Sabotaging Your Retirement
Written by
Laura Bogart
Edited by
Kristen Mae
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Retirement should be a fun time. You’ve worked hard and earned the right to play harder. Or relax. Vacation. Visit the kids and grandchildren. To achieve the lifestyle you want when you clock out for the last time, you’re going to need to save accordingly.
You’ve got your 401(k). Your traditional IRA. Your Roth IRA. You’ve even signed up for a health savings account. While these accounts can help you prepare for future expenses, life doesn’t stop when you’re retired — and life includes sudden, unexpected bills. If you’re not prepared to cover those bills, your best-laid financial plans for retirement can go up in smoke.
Fortunately, there is a financial resource that can keep your retirement from financially imploding. GOBankingRates spoke with Devin Miller, CEO and co-founder of SecureSave, about the power of an emergency savings account.
Emergency Savings Accounts Force You To Save Money
Miller defines an emergency savings account simply: a dedicated account for unexpected expenses. In retirement, when you’re no longer earning a regular paycheck, emergency savings become even more critical for covering health care costs, home repairs or market downturns.
However, when you’re building an emergency fund on your own, you risk forgetting to make regular contributions. Life gets busy. Bills pop up. Or you just plain forget. That’s why Miller is a fan of workplace ESAs — they take the memory game out of saving.
“The most popular and effective ESA is a payroll-linked workplace ESA where saving is easier, automated and often with an employer incentive,” he said. “More and more employers are offering ESAs to their employees as a new savings benefit and as a companion to their workplace retirement plan.”
You Get More Engaged With Retirement Savings in General
Miller found that people who started using emergency savings accounts often became more involved in retirement planning in general. The sooner you can get excited about retirement savings, the better prepared you’ll be to weather the financial ups and downs of retired life.
“One of the most exciting and surprising elements of an ESA is the impact they have on retirement savings,” he said. “If an employee has even a small amount of emergency savings, they are more likely to participate and contribute larger amounts to their retirement plan.”
You Don’t Have To Raid Your Retirement Plans for Emergencies
Not only did Miller find that employees with ESAs were more enthusiastic about contributing to their retirement plans, they were also less likely to take hardship withdrawals or loans from those accounts.
“An ESA is a double benefit in that it provides more short-term savings and liquidity, preventing you from taking on debt or skipping important but unexpected expenses, while also better preparing you for retirement,” said Miller.
You Enjoy Greater Peace of Mind in Retirement
If there’s one thing you do not need — especially in retirement — it’s added financial stress. Worrying about how you’ll cover emergency expenses is no way to spend your golden years. Besides, anxiety is not a great motivator for making clear-headed financial decisions.
For Miller, starting an ESA can help remove anxiety from the equation, making for a happier retirement and more logic-based decisions. And that’s not just his opinion — he has data to back it up.
“Recent research conducted by Vanguard has shown that even with just $2,000 in dedicated emergency savings, retirees reported feeling a higher sense of financial well-being and they spent less time per month thinking and worrying about their finances,” he said.
His advice to anyone nearing retirement is to check if their employer offers a workplace ESA. Many employers offer one-year incentives ranging from $100 to $1,000.
“It can be a great way to boost your emergency savings before retirement,” he said.
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