Your Savings Plan – Don’t Forget the Emergency Fund

Since the ultimate low of 1.9% reached in July of 2005, the monthly U.S. personal savings rate has trended up in the past decade. As you can see from the chart, savings really ramped up after the Financial Crisis of 2008, peaking at the end of 2012. In the last couple of years, however, savings dropped off yet again, averaging 4.9% in July of 2015.

It seems that even this improvement over a decade has not been enough as a recent report from Time detailed. The Great Recession and the economic turmoil it wreaked (both on the country and on individual citizens) left many with inadequate savings for emergencies. This lack has forced people to dip into retirement accounts when a need arose, causing them to pay taxes and penalties on early withdrawals. See the findings below (my emphasis in BOLD).

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With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic—a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.