In a recent survey conducted by Voya, it

was revealed that many Americans are

considering dipping into their

retirement savings in case of

emergencies. The study, which surveyed

1,005 Americans, found that 43% of

respondents considered their retirement

funds as their only form of emergency

savings. The survey also showed that

Black respondents, mothers, and those

with lower incomes were more likely to

depend on those funds for emergencies.


This trend highlights the need to help

more Americans prepare for unexpected

events that require quick cash influx.

Voya's Vice President of Customer

Analytics and Insight, Tom Armstrong,

says that "savings rates go down and

hardship withdrawals and loans go up"

in such situations.


According to a TransAmerica Center for

Retirement Studies survey conducted in

2021, almost 2 in 5 Americans have

already dipped into their retirement

account, with 29% taking out a loan and

27% taking an early or hardship

withdrawal.


While some 401(k)s allow for hardship

distributions to pay for emergencies,

some workers may have to pay a 10% tax

if they're younger than 59 ½. A 401(k)

loan must be repaid to the employee's

account plus interest on a set repayment

schedule. Failure to repay the loan on

schedule may result in it being

considered a distribution, subject to tax

and penalties.


Armstrong notes that employees

without adequate emergency savings are

13 times more likely to take a hardship

withdrawal from their retirement plan.

Those with household incomes under

$50,000, women with children at home,

and Black workers are more likely to

consider their retirement savings as

their only source of emergency funds.


Kia McAllister-Young, director of the

nonprofit America Saves, notes that

minority women often support other

relatives, making it harder for them to

save for emergencies. She also points

out that early hardship withdrawals have

long-term ramifications, reducing

workers' long-term security and

subjecting them to taxes on the

withdrawal that must be paid off within

three years.


The wage disparity, especially for Black

women, also makes it harder for them to

save for emergencies. The solution lies

in increasing awareness of the

importance of having an emergency

fund and improving financial literacy

for all Americans.


Legislation may help people save more
for emergencies:

A recent survey conducted by Voya has

revealed that many Americans view their

retirement savings as their only form of

emergency fund. According to the study,

more than 2 in 5 (43%) of the 1,005

respondents said they would rely on

their retirement accounts in times of

financial distress, with black

respondents, mothers, and those with

lower incomes being more likely to turn

to their retirement savings for

emergencies. This highlights the need

for better financial preparation and

education to help Americans build

emergency savings.


Tom Armstrong, the head of Voya's

Behavioral Finance Institute for

Innovation, said that when an

emergency strikes, savings rates tend to

decrease while hardship withdrawals

and loans increase. Furthermore, many

workers could turn to other resources

for their emergencies instead of their

retirement savings, such as employer-

provided holistic financial wellness

solutions, including health savings

accounts, student loan debt support, and

tools for building emergency savings.


To help people save for emergencies

without sacrificing their retirement

goals, the recently passed SECURE 2.0

Act has provisions allowing workers to

use a special emergency savings account

as part of their retirement account,

capped at $2,500, with up to one

withdrawal per month without fees.

Another provision enables workers to

take one penalty-free withdrawal from

their retirement account, up to $1,000

per year, for unforeseeable or

immediate financial needs related to an

emergency, which must be repaid within

three years.


In conclusion, while it's not uncommon

for Americans to dip into their

retirement accounts during

emergencies, there are other resources

available to them, and education and

preparation are key to building

emergency savings. The passing of the

SECURE 2.0 Act has brought support for

emergency savings, which is expected to

have a significant impact on individuals

and their savings needs.