Building Emergency Savings through Employer-Sponsored Rainy Day Savings Accounts

Many Americans live paycheck to paycheck, carry revolving credit balances, and have little liquidity to absorb financial shocks (Angeletos et al. 2001; Kaplan and Violante 2014). One consequence of this financial vulnerability is that many individuals use a portion of their retirement savings during their working years. For every $1 that flows into 401(k)s and similar accounts, between 30¢ and 40¢ leaks out before retirement (Argento, Bryant, and Sabelhaus 2015). We explore the practical considerations and challenges of helping households accumulate liquid savings that can be deployed when urgent pre-retirement needs arise. We believe that this can be achieved cost effectively by automatically enrolling workers into an employer-sponsored payroll deduction “rainy day” or “emergency” savings account, and present three specific implementation options.