Life After Full-time Work Blog

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#117 Emergency Savings Are The Natural Starting Line For Retirement Saving

And most people never get there


This is probably not top of your mind right now. If so, you’re lucky because you’re much better off than most people – I suspect most of my readers are. Nevertheless, I think it’s a massive issue, even if it’s not one for you. If there’s a way to get this blog post to those for whom it’s relevant, I’d appreciate it.

Here’s my point. Fist we survive, then we thrive. (That perspective isn’t news to you. It was the theme of Blog Post # 100 []). The covid-19 pandemic has driven this home to millions around the world, for whom day-to-day survival requires a short-term focus that dominates everything. Relative to survival, retirement is a long-term luxury.

Let me give you some facts that help to establish the size of the issue, then I’ll suggest an approach to overcome the global problem. It’s not my idea – it’s already being carried out, but on something far short of a global scale.


It’s well known that in many countries (probably most countries) most people wouldn’t be able to come up with $1,000 or £1,000 if they had an emergency that required that amount of cash.

From a recent webcast on the world’s retirement systems on July 29 organized by the UK’s National Employment Savings Trust (NEST, as it’s colloquially known), I took down these statistics:

  • 25% of US adults think they are likely to lose their job in the next year.
  • 87 million Americans anticipate having trouble paying credit card debt because of the pandemic.
  • 40% of Americans with a retirement savings account say they are likely to withdraw money from their account early because of the pandemic.
  • This is on top of the perennial condition that every year Americans withdraw an average of 1.5% – 3% of their aggregate retirement balances, particularly when they get the opportunity to do so while going from one job to another.

All of this tells me that having a tranche of emergency savings is a huge plus. In fact, I take it further. I think that it’s the qualification you need before you ever start thinking about saving for retirement. I think it’s the starting line for retirement savings. Without it, you’re running a race on a wing and a prayer. You may get to the finish line all right, but if so it’ll be with a lot of luck along the way that helped you to avoid the natural yet unpredictable obstacles in everyone’s path.

Retirement is part of thriving. Overcoming short-term unexpected emergencies is part of surviving. First survive, then thrive.

In blog post # 96 [] I listed emergency savings as one of several topics I plan to research. From your comments, I gather you see it as not being as important as other topics on my list, perhaps not even relevant. You’re right. It’s true. It’s not about retirement, which has been my main theme. But I see it as the essential foundation, the sort of thing which is part of the foundation for a building even though you don’t notice it. You only notice it when it isn’t there, in which case the building’s foundations are shaky, to put it mildly.

That’s why I think of having an emergency tranche as what you need to even get to the starting line for retirement saving.


Even though it wasn’t explicitly discussed in the webcast, I know that NEST has been a pioneer in this regard. As I understand it, they have created a mechanism for workers to voluntarily save first into a so-called “sidecar” fund, and not until that fund has £1,000 does the voluntary contribution get directed into the traditional retirement savings fund. The sidecar fund can be used for emergency drawdowns at any time, and then it needs to be replenished back to £1,000 before the voluntary savings are directed again into the retirement fund.

It doesn’t matter whether I have that exactly right or not. My purpose is simply to mention it as a possible approach to doing two things: (a) create an emergency fund as the first priority, and (b) link it to routine retirement savings so that you never have to think about it. Putting things on auto-pilot makes them much easier to achieve.

One of the webcast speakers, Karen Andres of the Aspen Institute, reminded us of the philosophy underlying so-called “cafeteria plans,” under which savings could be allocated to many purposes according to each worker’s choice – but I’m not aware of any national or major workplace plans that included emergency funds as a possibility.

I know that in Australia, because of covid-19, it’s now temporarily permissible to apply for early access to your “super” (meaning superannuation, i.e. retirement) savings. It will be interesting to see how that experiment develops. And in other places (like Singapore) that possibility is being discussed.

Anyway, the need to get to the starting line for retirement savings in good shape is something that the pandemic has accentuated and brought to the front of my mind.



An emergency fund helps you to survive; retirement savings then help you to thrive.


I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

6 Responses to “#117 Emergency Savings Are The Natural Starting Line For Retirement Saving”

  1. Cindy Deere says:

    Don, I very much agree that an emergency fund is a necessary building block to financial stability. It needs to be built before other savings (eg before retirement savings or even saving for a car or a vacation) and it needs to be maintained and probably adjusted from time to time as the cost of an emergency might adjust. I’m now a little bit into retirement and believe maintenance of the emergency fund is as important as building it. Emergencies don’t stop just because you’ve retired so you need to ensure easy access to funds that are there for that purpose. Thanks for raising the point and focusing attention on it.

    • Don Ezra says:

      Thanks very much, Cindy. It didn’t occur to me to say that maintaining the emergency fund in retirement is important, but now that you’ve pointed it out, I totally agree.

  2. Ted Harris says:

    Here’s an example of why it can be so important. At retirement we created an emergency fund with the idea of protecting our income-producing assets against market fluctuations, i.e. not having to deplete depreciated capital to replace shrinking income during a market downturn. As it turned out, we used the funds for an unexpected temporary family health issue after retirement. While we hope to replenish the funds, their existence prevented a permanent reduction in our retirement plans.

  3. Martin says:

    Hi Don.
    You mentioned Australia’s early withdrawal of superannuaton in this post and how the experiment might develop. As you might have guessed, it was a hugely contentious issue over here. As of September this year, nearly 3 million people (Australia’s population is 25 million) have been approved to withdraw more than $34 billion AUS ($32 billion CAD) from their retirement savings under the COVID-19 early access program.
    A survey of 3000 employees of a large construction company found that
    1. A quarter of people who accessed superannuation under the early release scheme made their decision within a day.
    2. Most members could not estimate the impact early withdrawal would have on their retirement balance
    3. When members estimated the impact of withdrawing on their future retirement balance, only one-in-five came close to the super fund’s projections.
    4. About a quarter of surveyed members withdrew almost their entire account balance.
    5. The median age of its members withdrawing super early was 39 and the median balance before withdrawal was $37,396 AUD ($35,700 CAD).
    While I was gobsmacked by these survey findings, the many heartbreaking, personal news stories that followed of those who chose to withdraw their super savings made me question whether I would have done the same.
    Source: ABC News, Australia.

    PS Apologies Don for giving you a new nationality! BTW, the Cardinal cop series are a huge hit over here at the moment and everyone wants to go to stunning Northern Ontario!

    • Don Ezra says:

      Thanks, Martin. This is information I was unaware of. I have the same reaction as yours. It’s so sad, but personal circumstances lead to personal decisions. The only thing I wish were different is items 2 and 3 on the list, which would at least have led to informed decisions rather than generally uninformed decisions.

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