The risky trend that's putting secure retirement in danger

• Key insight: Learn how employer-sponsored emergency savings can reduce retirement-plan leakage and preserve long-term assets.
• What's at stake: Rising withdrawals threaten retirement readiness and increase employer fiduciary and workforce stability risks.
• Expert quote: "Accessible short-term savings underpin long-term financial success," says Katie Riley, Fidelity Investments.
• Source: Bullets generated by AI with editorial review

401(k) hardship withdrawals have more than doubled in the past seven years, according to Fidelity Investments. Offering separate savings options is one of the best ways to help employees keep their investments intact. 

"An individual's long-term financial success hinges on their ability to recover from short-term setbacks," says Katie Riley, director of workplace thought leadership at Fidelity. "Being able to say, 'I have enough to cover me right now if something goes wrong,' is what an employee needs to have in the front of their mind."  

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Fidelity's research shows that half of employees do not have sufficient funds to cover an unexpected expense, and those without emergency savings are twice as likely to reach for their 401(k) in a time of need. It's an issue that cuts across industries and income levels — and one that benefit leaders can actively address with the right offerings, Riley says.  

"Just because an individual has higher income doesn't necessarily mean they have financial stability," she says. "There are a lot of external factors: Credit card debt, student loans, financial emergencies, helping family, helping their community — things that people prioritize, sometimes before they prioritize their own financial well-being."

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One savings account, countless uses

Emergency savings accounts can be the answer to a variety of financial setbacks, from medical bills to home expenses, Riley observes. They can also be used to cover daily expenses during a period of employment hardship, such as a layoff or furlough. In addition to helping employees avoid a 401(k) hardship withdrawal, these "more liquid accounts" can also keep people from taking on high-interest loans and credit card debt, Riley says.       

Riley notes that as benefit leaders explore the many savings platforms available, certain elements, such as easy accessibility, make all the difference for high employee engagement.  

"[Employees] want low and no fees, low and no minimum balances [and] a competitive interest rate," she says. "[Make] sure they are getting a few dollars for their bucks as well, and that it's working for them while also being quickly accessible when it's needed."

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Ongoing communication is another important factor, and Riley points to designated campaigns as a good way to keep valuable offerings from getting lost in the noise of open enrollment.   Finding a vendor partner who assists with communication strategies and works directly with employees to achieve their savings goals can both lighten the load on benefit managers and create a more well-rounded support system. For example, workers who take part in Fidelity's financial wellness programs put aside 3.5x more savings and have 45% greater satisfaction than those who do not. 

By providing employees with the right kind of short-term savings pathways, employers can help them feel confident in both their immediate and long-term financial setups. 

"It's important that employers are [saying], 'We know your future financial wellness hinges on your current financial stability, so here are these products that can help you in the short term, so that our retirement plan can also help you in the long term,'" Riley says.