Forget Retirement: Americans Aren't Even Set for Emergencies

business man showing his empty...
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Many Americans aren't on track for retirement, with inadequate savings and poor planning. Effectively, the country is collectively driving into a brick wall starting in just a few years. But a new survey says things are worse: consumers don't have enough money in the bank to weather an extended financial mishap.

In a telephone survey of 1,004 adults in the continental United States, only a third had the commonly recommended six months of living expenses in the bank. A sudden illness or job loss could make that amount of money the difference between coping and disaster. Forty percent had at least three months of expenses in savings -- down from 45 percent a year ago -- and 26 percent had no emergency savings at all.

"We've been asking this question for four years in a row," chief financial analyst Greg McBride told DailyFinance. "What we've seen is a stunning lack of progress on the part of American households in accumulating emergency savings.

"There is a great deal of uncertainty and discomfort on the part of consumers with the savings they have accumulated," he said. However, "People are hemmed in by high expenses and stagnant incomes."

Save for an Emergency or Savor a $5 Latte?

In addition, many have destructive behaviors that undermine their chances of saving money. "Savings hasn't always been a very high priority among American consumers," said McBride. "It's ... ongoing stuff: the dinners out, the $5 cup of coffee on the way to work every morning, the latest and greatest iPhone."

"The most worrisome aspect of this is the age group most likely to have no emergency savings at all is between the ages of 30 and 49," McBride said. "Those are most likely families. They need that emergency savings, should a regular paycheck go away."

Although many assume that young people are less responsible with their money, the survey suggests that they are doing better. Those 18 to 30 were the most likely to have up to five months of expenses saved.

"They had a front row seat for this recessing and ensuing anemic recovery," he said. "But some of that is a reflection of the lower expenses they have. At least they've got some money put away."

McBride's advice is to prioritize spending. "If you wait until the end of the month to save what's left over, too often nothing's left over," he said. "Not only does it accomplish the savings, but it forces you to live on less than what you make."

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If wages are stagnant, you just have to find OTHER WAYS to save. Some ideas:

1) drop the smart phone and get a "dumb" one. Save about $50 per month. Get a low-priced tablet (e.g., Kindle Fire) or use your old iPhone as a wi-fi only device. Wi-fi is available everywhere; you really don't need to pay for cell-based data plans
2) call your car and home insurance company and tell them you want to go through all your coverage because you found another carrier that is cheaper. They'll probably help you "find" 10% off or more.
3) speaking of car insurance - An expensive policy from GEICO, Progressive, etc. is not needed. You can find one usually for less than $25/month from Insurance Panda. If you spend too much on car insurance from one of those big companies, chances are you are simply funding their expensive TV ads with cute animals.
4) compare what your house is really worth to your assessment. Many assessments have never been properly adjusted down to reflect the market over the last 4 years. We cut our property taxes by about 20%.
5) re-fi your 30-year mortgage to a 15. The interest rate will drop by at least 50-75 bps, more depending on your current rate. The payment may go up slightly, but it is because you are paying off your loan faster. If it's possible, get the mortgage paid off before the kids go to college. At a minimum, have it paid off before you retire. if you buy life insurance (which you should), don’t overpay. you can get $15 policies from places like Life Ant or gnworth.
6) review your credit card bills for all the things you are paying $10-20 per month for that you no longer need. I bet everybody has at least a couple
7) drop all magazine (paper and on-line) subscriptions. If you look around, you can find comparable content for free.
8) review your investment portfolio for ways to replace higher fee mutual funds or ETFs with lower fee ones. S&P500 funds/ETFs shouldn't charge more than 0.10% in fees. Fees may be higher for specialty funds, but they are all coming down fast. If your company 401K uses high-fee funds, talk to the folks in charge. A difference of 25 bps in fees will mean a difference of about 5% in your portfolio value after 25 or 30 years.
9) and of course the most impactful -- never carry a balance on a credit card. If you can't resist, cut up the cards.
10) save, save, save!

June 23 2014 at 1:04 PM Report abuse +1 rate up rate down Reply

Um --- I think the author probably meant to write "prioritize SAVING" in the closing paragraph --- not "prioritize spending". (Proofreading before publication is apparently not a high priority on DF. LOL)

Otherwise, his comments are right on target. Most people are living in deep denial. They think the really bad stuff in life will always happen to someone else --- not to them.

The most common mindset is: "Emergency savings??? That's boring." Consumer spending is FUN. Or, so they think. Until they have that catastrophic traffic accident. Or major illness arrives. Or they lose their job and can't find anything else that pays more than mini wage. Or a weather-related disaster destroys their home and puts them on the street. Or any one of a number of other unexpected events derails their lives.

June 23 2014 at 11:19 AM Report abuse rate up rate down Reply
Silent Hill

The new reality is that the US is returning to great depression era economics. Eating meat will be a luxury. Rent, groceries, and energy will cost people too much to afford anything else.

I recently saw a loaf of bread in the store for $3 and gas is at $4. If you can afford it then no big deal. However, many can't. There's no jobs, and the ones that are around don't pay a living wage anymore.

We are turning into France while the last 2 presidents say we are in an economic recovery. Don't believe it.

June 23 2014 at 11:16 AM Report abuse rate up rate down Reply