Saving Through a Crisis: LMI Retirement Plan Participants’ COVID-19 Financial Strategies Six Months In

Saving Through a Crisis: LMI Retirement Plan Participants’ COVID-19 Financial Strategies Six Months In

Thursday, January 7, 2021

This is the third installment from Commonwealth’s “Saving Through a Crisis” series (read part 1 and part 2), 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.

As the end of 2020 nears, Americans are nearly nine months past the first COVID-19 economic impact payment, and the hopes for another stimulus before November’s election did not come to bear. Low- to moderate-income Americans have been left to cope on their own, with no clear end in sight.

To understand how low- to moderate-income (LMI) plan participants ($20-75,000 annual household income) are managing the pandemic’s impact to their financial security, Commonwealth is partnering with the Defined Contribution Institutional Investment Association’s (DCIIA’s) Retirement Research Center on a series of surveys on how they are handling their finances and retirement savings during COVID-19.

This third survey was fielded between September 18 and September 28, just over two months after our second survey.

Like other research has shown, our most recent survey found that many LMI plan participants are struggling financially, and income loss persists for the 1 in 3 respondents that lost income due to the pandemic. Although the CARES Act pointed Americans to their retirement savings as a source of liquidity, for many of the most vulnerable, their retirement plan is not enough to cover months of lost income: of the quarter of respondents who did not have emergency savings heading into the pandemic, almost half (47%) have less than $10,000 in their workplace retirement plans. For context, $10,000 is less than two months’ worth of expenses for the average American household.

Read on for three findings about LMI retirement plan savers and the role emergency savings are playing during COVID-19.


  • Those with emergency savings are half as likely to tap retirement savings: Respondents with less than $2,000 in liquid savings are twice as likely to have taken a 401(k) loan or hardship withdrawal in response to COVID-19 than those with more than $2,000 in liquid savings (10% vs. 5%). Respondents who have lost income since February 1st are also more likely to have taken a loan or withdrawal (10% vs. 4%), as are those who have not saved for emergencies since Feb 1 (10% vs. 5%), a finding consistent with our second survey’s findings.

  • Among LMI plan participants, there has been little recovery in lost income: About a third of respondents had income lower than pre-pandemic levels in every month from April through September. Unfortunately, respondents reported consistently lower income with no significant improvement at any point since the start of the pandemic: the same percentage of respondents had lower income in September as the percentage in April. This finding aligns with evidence of a K-shaped recovery as LMI Americans continue to bear the brunt of the recession while higher income Americans have recovered from their job loss.

  • Liquid savings are dwindling, particularly for respondents with less than $50,000 in household income: More respondents in our third survey have less than $500 in liquid savings (11% in September vs. 7% in our July survey). This trend is especially strong among lower earners: 16% of respondents with $20-$50,000 in household income have $500 or less in liquid savings, compared to 10% in our July survey, while savings among respondents with $50-$75,000 in household have stayed steady. More respondents across all income brackets also report having withdrawn from their emergency savings since February 1st: 55% of all active savers, versus 43% in our July survey.

As the survey shows, Americans are still suffering: many respondents have not made up the income loss they experienced early in the pandemic, and they are drawing down on their emergency savings. For the financially vulnerable, retirement accounts cannot cover prolonged periods of lost income: respondents who do not have emergency savings also have little in retirement savings.

This survey also demonstrates that immediate support is needed for LMI Americans who are most impacted by the pandemic. Our survey respondents are experiencing prolonged decreases in income and their liquid savings are dwindling. With unemployment insurance ending for millions of Americans at the end of December and a new wave of lockdowns could further fuel the unemployment crisis, Congressional action is critical.

Finally, this survey provides further evidence that emergency savings enables financial resiliency and preserves retirement savings for their intended purpose. When we turn the corner on this pandemic, providing easy, accessible, low-to-no fee options for LMI Americans to save for emergencies will be an essential step in rebuilding their financial security. Policymakers cannot go back in time to offer the right tax-advantaged short-term savings account to prepare for this crisis, but they can support LMI Americans in saving for the next one.

Commonwealth is continuing to track LMI plan participants’ actions with at least one additional survey in the coming months. Through BlackRock’s Emergency Savings Initiative, Commonwealth and its partners are exploring the introduction of new emergency savings solutions at scale, including working with record keepers to develop and launch emergency savings tools both in-plan and out-of-plan. If you are a plan sponsor or record keeper interested in offering emergency savings and would like to learn more about how you can support your plan participants, contact Nick Maynard at

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million 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. Partners including UPS, Mastercard, MX, and Self Financial have joined BlackRock’s Emergency Savings Initiative to help their employees and customers take the essential first step toward long-term financial well-being.