Access to savings tools crucial for boosting workers' retirement savings – research

Lack of access to retirement plans is a key barrier for US worker retirement savings

Access to savings tools crucial for boosting workers' retirement savings – research

A recent study by BlackRock and Human Interest, an online employee retirement benefits provider, has revealed that American workers earning below the national average annual salary of $60,000 struggle to save for retirement due to a lack of access to savings tools. 

The research highlights the significant impact of intuitive and automated savings tools on retirement savings. When workers have access to such tools, the data showed that their savings rates are substantially higher. 

For workers earning less than $60,000 annually and with access to retirement tools, their contribution rate is 7.4% of their income. In contrast, those in the same income bracket without access to retirement benefits save at a much lower rate of 0.9%. 

According to the research, a median-income worker using the Human Interest platform and saving at a 7.4% rate could potentially accumulate $710,900 by age 65. In contrast, a median-income worker without access to retirement benefits and saving at a 0.9% rate would have saved approximately $86,500—eight times less than their counterpart. 

The study also revealed that integrating an emergency savings account into a retirement plan can have a positive impact on workers' savings habits. Workers with emergency savings were more than 70% more likely to contribute to their defined contribution retirement plan. Additionally, those with emergency funds were 13 times less likely to take a hardship withdrawal from their retirement plan compared to those with inadequate savings. 

Previous research by BlackRock's Emergency Savings Initiative, in partnership with the Defined Contribution Institutional Investment Association's Retirement Research Center, found that low-income households with at least $1,000 in emergency savings were half as likely to withdraw money from their workplace retirement savings accounts during the pandemic. 

Several other studies have also demonstrated a link between workers' access to emergency savings accounts and their likelihood to contribute to defined contribution retirement plans.  

Natalie Blain, a senior innovation manager at Commonwealth, noted that access to emergency savings accounts is likely to boost retirement contributions for low- and moderate-income workers.