Workers’ Retirement Savings Are Boosted By Access to Savings Tools

U.S. workers earning below the national average annual salary of $60,000 are not successfully saving for retirement because they lack access to savings tools, according to research conducted by BlackRock and online employee retirement benefits provider Human Interest.

BlackRock and Human Interest found the retirement savings of workers are largely driven by—or, alternatively, blunted by—the availability of “intuitive and automated savings tools,” the September 14 retirement insights post stated.

When workers are offered access to retirement tools, data showed the rates at which individuals are saving are significantly higher: Those earning less than $60,000 annually with access to retirement tools contribute 7.4% of their income, compared with a 0.9% savings rate for those below-average-income workers without access to a retirement benefit.

With an average savings rate of 7.4%, a “median-income worker” saving on the Human Interest platform for retirement may be able to accrue $710,900 by age 65, according to the research. A “median-income worker” without access to a retirement benefit and saving at a 0.9% rate would have saved about $86,500, about eight times less than their counterpart, data showed.

Data for the retirement insights post was sourced from BlackRock’s philanthropic Emergency Savings Initiative. Over the past four years, BlackRock conducted 43 financial security studies and pilot programs as part of the initiative, created to reach low-to-moderate income households across the U.S., the post stated.

Bolstering a retirement plan with an emergency savings account can support workers to greater amounts. Workers with emergency savings were found to be more than 70% more likely to contribute to their defined contribution retirement plan, and those with emergency funds were found to be 13 times less likely to take a hardship withdrawal from their plan than those with inadequate savings, the data showed.

BlackRock invested in Human Interest, a San Francisco-based recordkeeper for small business 401(k) plans, earlier this year. The firms did not disclose the amount of the investment.

Low-income households with at least $1,000 in emergency savings were half as likely to withdraw money from their workplace retirement savings accounts during the pandemic, according to a study from BlackRock’s Emergency Savings Initiative, conducted in partnership with the Defined Contribution Institutional Investment Association’s Retirement Research Center, published earlier this year.

Several additional studies have shown a connection between workers’ access to emergency savings accounts and their likelihood to contribute to a defined contribution retirement plan.

For low- and moderate-income workers, access to emergency savings accounts is also likely to bolster retirement contributions, explained Natalie Blain, a senior innovation manager at Commonwealth, at the Plan Progress webinar last year.