While employees are increasingly confident about their ability to save enough money to support themselves in retirement, and more workers are building up their emergency savings, many are still anxious about their day-to-day finances and continue to feel the effects of elevated cost of living, according to several recent research reports.

After surveying 1,000 full-time employees in August 2024, Betterment at Work found that the most-reported financial stressor that employees faced in the previous 12 months was the increasing cost of living, followed by credit card debt and housing costs.

On the flip side, the survey found that 63% of respondents reported having an emergency fund—a jump from 52% in 2023. This included 82% of those reported being “very/somewhat financially stable,” as compared with 25% of those with “moderate/significant financial instability,” showing a correlation between feeling financially stable and having emergency savings, according to Betterment at Work.

But even though the majority of respondents reported having emergency funds, a shockingly high 54% said they use their retirement account for emergency expenses. Of those who have tapped into their retirement accounts for emergencies, 34% said they did so within the past year to pay for short-term expenses, such as rent, groceries and medical bills.

Mindy Yu, director of investing at Betterment at Work, said in the report that the findings indicated participants’ lack of awareness of the consequences of early retirement account withdrawals.

Under the SECURE 2.0 Act of 2022, employers can allow participants to cash out up to $1,000 from a 401(k) or IRA for emergency withdrawals without the participant paying a penalty.

Betterment at Work found that Millennials were the most likely age cohort to have tapped into their emergency fund in the preceding 12 months. Those with student debt were almost twice as likely as those without student debt to have tapped their emergency fund.

The Importance of DC Plans

When it comes to retirement savings, 55% of respondents said they want a higher 401(k) match than what their employer currently offers, and 18% said they want a 401(k) match on student loan payments. Despite this, 72% of respondents feel at least somewhat confident that they will be able to save enough to support themselves in retirement, up from 68% who felt the same in 2023.

The Investment Company Institute found in its report “American Views on Defined Contribution Plan Saving, 2024” that defined contribution account owners appreciate the saving and investing features of DC plans. For example, nearly nine out of 10 DC plan-owning individuals agreed that the plans helped them think about the long term and made it easier to save. Additionally, nearly half of individuals with a DC plan said they probably would not be saving for retirement if not for their DC plans.

A significant majority (85%) also agreed that the tax treatment of their retirement plans was a big incentive to their contributing, and many disagreed with proposals to remove or reduce tax incentives for retirement savings.

“It’s important when discussing changes to our retirement system for policymakers to note that current plans are working for millions of Americans,” said Sarah Holden, the ICI’s senior director of retirement and investor research, in a statement. “Most Americans, whether they currently have retirement accounts or not, have confidence in DC plans as they are and do not support any changes.”

The results come as Congress is in discussions to extend the 2017 Tax Cuts and Jobs Act, a major priority for President Donald Trump. There are ongoing conversations in Washington, D.C, about where federal revenue to offset tax cut extensions could come from, and most tax-free or tax-favored programs are facing consideration.

How Can Retirement Income Options Gain Acceptance?

Beyond the tax question, a recent report from Greenwald Research found that participating in a DC plan alone will not be enough to allow workers to retire comfortably, and a majority of workers participating in employer-sponsored plans (86%) said they want their employers to offer in-plan retirement income options.

Slightly more than half of plan participants surveyed by Greenwald said they feel employers have a high level of responsibility for helping employees generate income or develop a withdrawal strategy in retirement. Meanwhile, plan sponsors are still concerned about the complexities of offering such strategies, the fees associated with them and the reputation of annuities and guaranteed lifetime income.

Only one-quarter of plan sponsors said they currently have at least one retirement income option in place, while another 30% said they are seriously considering implementing such options. Both plan sponsors and participants in the survey expressed the need for more education on retirement income options, as well as tools that help determine when participants should start receiving retirement income.

“I would be concerned about communicating [retirement income options] and rolling them out,” one plan sponsor cited in the Greenwald report said. “Making sure that participants are aware of the options and understand them is easier said than done.”