This is the fifth installment from Commonwealth’s “Saving Through a Crisis” series (read part 1, part 2, part 3, and part 4), which shares their latest research, in partnership with the Defined Contribution Institutional Investment Association’s Retirement Research Center, on how low- to moderate-income plan participants are handling their retirement savings during the pandemic.
Over the past few months, the vaccination rates of the general public have spurred a reopening of businesses and, with that a considerate and continuing drop in national unemployment rates. Despite these positive developments, the financial stress and lasting financial burdens the COVID-19 pandemic has put on individuals and families living in the United States, especially LMI individuals, has continued with an uncertain future.
In our latest series of surveys developed in partnership with the Defined Contribution Institutional Investment Association’s (DCIIA) Retirement Research Center, Commonwealth found that some LMI plan participants are still facing increased financial stress and burdens compared to before the pandemic. However, some hopeful signs indicate that some LMI plan participants are beginning to recover from financial actions taken during the pandemic that may have jeopardized retirement readiness. These actions such as retirement withdrawals and a lowering of contribution rates were taken to cover basic expenses as income shortfalls increased.
Below are specific key findings from our fifth and final survey in this series, as well as our findings on what role emergency savings played in providing resilience and stability for LMI plan participants during the pandemic.
- Many LMI plan participants are still struggling with lost income: 29% of respondents report having lower income compared to February 1, 2020, compared with 33% in our last survey.
- At the same time, some plan participants are beginning to take steps to recover from the necessary actions they took during the pandemic that jeopardized their long-term financial security: 7% of all respondents have taken some action (such as increasing their contribution rate, repaying a loan, or restarting contributions) to get their retirement savings back on track. A third of people who took a negative action are now trying to get their retirement savings back on track.
- Respondents with accounts specifically for emergency savings save a greater amount: Respondents who have at least one account specifically for emergency savings are 8% more likely to have a high amount of liquid savings (over $500), compared to respondents who save for emergencies but do not have an earmarked emergency savings account. 38% of respondents do not have an account they use only to save for emergencies.
This final survey, which captured financial actions taken from February 2020 to May 2021, also shed light on the protective effects of emergency savings.
Overall, LMI participants who had emergency savings going into the pandemic were better off than those who had retirement savings only. Their retirement savings were also more protected.
- Respondents who went into the pandemic with emergency savings were equally likely to still be struggling with lost income as of our last survey as those respondents who did not. However, they have had a different experience of the pandemic.
- Respondents who had emergency savings going into the pandemic are less likely to report that they are really struggling over a year past the start of the pandemic (5% vs. 28% of respondents who did not have emergency savings going into the pandemic).
- Respondents with emergency savings going into the pandemic are also more likely to have higher average CFPB scores (55.9 vs 47 for people without).
- Respondents with emergency savings going into the pandemic are less likely to have to suspend payments or take some action that jeopardizes their financial (and specifically their retirement) future.
- Respondents with ES going into the pandemic are 6% less likely to have taken out a payday loan or cash advance, 7% less likely to have borrowed from friends and family, and 6% less likely to have stopped paying bills (rent, mortgage, car loans, utilities) compared to respondents without ES going into the pandemic.
- Respondents with ES going into the pandemic are less likely to have made partial payments, delayed payment, skipped payment, or suspended or stopped payments entirely on their primary residence. 13% of people with ES did at least one of those things, vs. 25% of respondents without ES going into the pandemic.
- Respondents with ES going into the pandemic are less likely to have taken a negative retirement action (20% vs. 30% of respondents without ES).
- Having emergency savings also is associated with being less likely to have accumulated debt during the pandemic: Respondents with ES going into the pandemic were less likely to have higher debt in April/May of this year than they did in Feb 2020 (19% of respondents with ES going into the pandemic vs. 35% without).
Overall, this survey has captured the reality that many individuals and families still face a financially stressful journey ahead. The economic scarring from unemployment and unexpected costs have left people, particularly LMI individuals, struggling with lost income from the past year. However, this research also captures important signs of hope and resilience existing for the future as some plan participants begin steps to recover from the negative actions taken toward their long-term financial security. Finally, those with emergency savings were able to recover quicker than those without, once again highlighting the critical importance of liquid emergency savings funds.
The COVID-19 pandemic is not the last financial crisis, whether individual or national, that LMI plan participants will face. Both plan sponsors and recordkeepers have an opportunity to support LMI plan participants to use this recovery period to build an emergency savings buffer to prepare for the future and protect their retirement savings.
Through BlackRock’s Emergency Savings Initiative, Commonwealth and its partners are exploring the introduction of new emergency savings solutions at scale, including working with recordkeepers to develop and launch emergency savings tools both in-plan and out-of-plan. If you are a plan sponsor or recordkeeper interested in offering emergency savings and would like to learn more about how you can support your plan participants, contact Nick Maynard at firstname.lastname@example.org.
BlackRock’s Emergency Savings Initiative
BlackRock announced a $50 million philanthropic commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis.