David John

Many Americans live paycheck to paycheck, carry revolving credit balances, and have little liquidity to absorb financial shocks. 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 associated with helping households accumulate liquid savings that can be deployed when urgent pre-retirement needs arise. Automatically enrolling workers into an employer-sponsored “rainy-day” or “emergency” savings account—terms that we use interchangeably in this paper—funded by payroll deduction could be a cost-effective w...

Roughly half of Americans live paycheck to paycheck. When financial shocks occur during their working lives, many of these households tap their retirement savings accounts. We explore the practical considerations and challenges associated with helping households accumulate liquid savings that can be deployed when urgent preretirement needs arise. In particular, we consider plans that would allow employers to automatically enroll workers into an employer-sponsored payroll deduction “rainy-day” or “emergency” savings account. Having separate rainy-day and retirement savings accounts can facilitate greater saving for short- and long-term purposes by helping to psychologically segregate and catalyze these two motives to save. Auto-features and mental accounting can be jointly deployed to reduc...