Many financial advisers recommend carrying 3-6 months’ worth of expenses in an emergency fund, but only 39 percent of Americans would even be able to cover an unexpected $1,000 outlay with their short-term savings, according to a Bankrate survey we looked at in January. Another new poll conducted by Bankrate similarly found that only around half (54 percent) of consumers currently have more emergency savings than what they owe in credit card debt. At the same time, 16 percent of respondents reported having no credit card debt but no savings either.
That agrees with an earlier study by Bank of America which asked U.S. adults to list their biggest barriers to retirement saving and found that one of the most frequent responses was “I prioritize paying down debt.” However, sentiment appears to be shifting because 52 percent of respondents in the latest Bankrate survey said that this year if given the choice they would rather boost their emergency fund than pay down credit card debt, up from 45 percent in 2020. This is encouraging because the earlier a person can learn the importance of setting money aside for the future the better. In fact, the Bankrate researchers stressed that younger adults have time on their side because “every $1 they invest could grow to $15 or even $20 by the time they retire, thanks to compound interest.” Further, having an adequate emergency fund helps decrease the likelihood of being forced to dip into one’s retirement savings early.
That is especially important since many Americans are already “at risk of retiring broke,” according to an analysis by GoBankingRates. Specifically, 64 percent of surveyed U.S. adults said they currently have less than $10,000 set aside for retirement, including 46 percent who reported having absolutely no long-term savings. Younger Americans are of course exacerbating those figures, as 54 percent of Millennials and 63 percent of Gen-Z respondents said that they currently have no money set aside for retirement. However, an alarming 39 percent of respondents ages 55-64 stated that they still have yet to amass any sort of old-age nest egg. For those whose savings are lacking, the report’s authors recommend reviewing your spending to see what nonessential expenses can be cut and increasing 401(k) contributions with each pay raise.
Sources: Bankrate, BAML, GBR