People save in emergency funds to overcome unexpected expenses like medical bills and home repairs or to stay afloat during job losses. However, high borrowing and living costs, relatively muted wage growth, job losses, and lower-than-expected job openings have severely strained US household budgets. The mounting pressure to accommodate rising costs has stunted Americans' ability to save in emergency funds. A 2024 Empower survey of over 1,100 US adults revealed that over 20% had no emergency savings, while 37% couldn't afford an emergency expense of $400, primarily due to high-interest credit card debt, elevated inflation, and subsequent price increases for diverse essential products.
However, emergency funds might be a low priority for those nearing retirement, as they could be more focused on planning for 401(k) and Social Security withdrawals. While financial experts generally recommend maintaining an emergency fund sufficient to cover three to six months of expenses, Mamie Wheaton, a certified financial planner and the director of financial planning at LearnLux, explained in an Insider post that the emergency fund savings estimate changes in retirement. She recommends that soon-to-be retirees build an emergency fund covering 12 months of expenses. An individual might overcome financial difficulties with a smaller emergency fund during their working years, but higher liquid savings for unexpected bills mean more security in retirement.
