We hear more and more about how financial stress impacts health and vice versa. Employers are increasingly recognizing that they can play a role in helping their employees better manage financial security as well as health. The benefits to the employee are obvious, and the employer potentially gains by having employees who are happier, more productive, and ultimately more loyal.
So here’s an interesting consideration around financial security: What do emergency savings have to do with retirement savings? Technically, the answer should be “nothing.” But for too many Americans, the answer is, sadly, everything. Some 30 million people a year dip into their retirement savings to pay for an emergency. Why is this such a big deal? Because it not only jeopardizes future financial security, but also can be very costly, due to fees and penalties incurred, not to mention the lost investment/growth opportunity for the money that’s pulled out of the retirement fund(s).
Financial planners urge their advisees not to think of their retirement savings as a rainy day fund, for all of the reasons outlined above. Even if more challenging, it is far better to find other ways to save and create an emergency fund – for example, disciplined budgeting, automated savings, and other targeted money management approaches. Not sure how much to set aside? Experts typically recommend having 3-6 months of living expenses in liquid assets (funds that are in cash or can quickly be converted to cash) available to cover an emergency or unexpected expense.
Of course, none of this means that people should ignore their retirement savings completely. They should make sure to have the right investment mix in a retirement portfolio, given things like life stage and risk tolerance, because this is key to successful retirement investing. Low cost automated services like blooom, with whom ConnectedHealth recently partnered, can provide valuable retirement account evaluation and management services. blooom is an online Registered Investment Advisor that can quickly analyze the health of an employee’s employer-sponsored retirement account, and can take on ongoing management of the account to optimize how it is invested.
The bottom line for employees? Don’t use retirement savings for emergency expenses, and make sure you have retirement savings that are invested appropriately to maximize retirement spending power. These reminders can help employees keep two health and financial security cornerstones – income and future savings – solid and strong.