One Problem Dented the Retirement Savings of 30 Million Americans Last Year

Thirty million Americans made unexpected withdrawals from their retirement accounts in the past year due to a largely preventable problem, according to a new survey.

The issue: Lack of sufficient emergency savings.

Bankrate.com found nearly 1 in 10 Americans had to use their retirement savings to cover an emergency within the past year. It’s the latest evidence that many Americans aren’t doing enough to save for retirement.

The consequences of withdrawing funds early are myriad, noted Greg McBride, CFA, the website’s chief financial analyst.

“Using retirement savings to cover an emergency is a permanent setback to retirement planning, with the possibility of taxable distributions, early withdrawal penalties, loss of tax efficiency, and the inability to replace withdrawn funds in future years,” McBride said, in a press release.

Still, at least those 30 million Americans who raided their retirement accounts could say they were saving for retirement. Bankrate.com found some 21 million Americans aren’t saving for retirement at all.

Experts vary as to how much one should keep in “emergency” savings, though most say it’s best to save back at least three months’ worth of living expenses, and ideally six months’ worth. For most people, that would be enough to cover a major car repair, a health insurance deductible (or annual maximum), or a standard home repair. For many, it will also provide adequate funding to bridge a gap between jobs if one or both of a household’s wage earners loses his or her job.

The benefit of having such funds set aside in an “emergency fund” rather than lumping it in with other savings is that dipping into the emergency fund won’t have a significant impact on one’s other savings goals.

Only 22% of Americans surveyed in a Bankrate.com study released earlier this year had six months’ worth of living expenses in their savings account.

The new Bankrate.com survey found 30% of Americans feel less comfortable with their savings today versus one year ago. About 1 in 5 (18%) said they feel more comfortable today.

The survey was based on a sample of 1,004 US adults and was conducted by Princeton Survey Research Associates International from Sept. 3-6. The margin of error was plus or minus 3.7%. The full survey can be seen here.