Are more of your employees taking hardships and loans from their retirement plan? Are your workers increasingly stressed about their financial situation as they are struggling to pay for everyday living expenses as inflation takes its toll on their budgets? Sadly, the answer is likely yes to many of these questions, and employers are left wondering how they can help employees get on a more secure financial path. For many individuals, a lack of adequate emergency savings has been a growing need and focus, which has only been heightened in recent years by the impacts of COVID-19 and inflation. In addition to these challenges, recent industry research has found that without savings to fall back on, 35% of individuals would have to borrow funds to pay a $1,000 unexpected expense, either by financing with a credit card, taking a personal loan or turning to friends or family.

The fact is that unplanned expenses are surprisingly common across all age groups and economic levels — and not having adequate emergency savings to cover unexpected expenses can be a major contributor to financial stress. This can negatively impact workplace productivity and the employer's bottom line, plus it can put employees' retirement at risk. This is where an emergency savings fund can help support the short-term needs that individuals face today, which in turn can help improve their long-term goals and make them feel more financially secure overall.

How a lack of emergency savings can put retirement at risk

The reality is that employees without adequate emergency savings often turn to their retirement plans to meet short-term financial needs. When medical bills, car repairs or other unexpected expenses occur, employees might turn to their retirement account for money if they don't have other savings available. However, these early withdrawals do not come without cost. In addition to fees, penalties and taxes, the costs of reduced savings and potential investment earnings can impact one's long-term retirement savings as well. In fact, according to Voya retirement plan participant data, employees without adequate emergency savings are 30% more likely to decrease contribution rates, 13 times more likely to take a hardship withdrawal and three times more likely to take a loan from their retirement plan.