Perspectives : DC Retirement | March 15, 2023

Are your participants expecting the unexpected?

Read time: 8 minutes

The third in a series about financial wellness.
If you needed to quickly pull together $1,000 in cash to cover an emergency—like a home repair, car repair, or injury—could you? Fifty-seven percent of us couldn’t, according to Bankrate’s 2023 annual emergency savings survey. 

And that’s unfortunate. Because in life, things are going to happen that we might not see coming—and they’re probably going to cost us money. That’s why we want to help your participants stay vigilant and be prepared for circumstances that could affect their savings.

To help protect you and your participants from life’s annoying financial curveballs, Vanguard’s Guide to Financial Wellness, which introduces our financial wellness framework, suggests preparing today with a healthy stash of emergency savings. 

The shocking truth about financial emergencies

OK, perhaps not that shocking. But what are the emergencies that participants should prepare for? And what makes them shocking?

  • Spending shocks are those everyday things that make the day seem a little less bright. Things like a broken refrigerator, car repair, flooded basement, or even a brief hospital stay or broken bone.
  • Income shocks can be a bit more catastrophic because they typically result in the temporary (one hopes) loss of income. Like when someone loses their job or is incapacitated and unable to work. Or even if someone wants to take some time off, away from work.

Will these things happen? Maybe, maybe not. But the important thing is to expect the otherwise unexpected. That is, carry on as if you’re certain that something you don’t see coming is just around the corner.

After all, no one expected a worldwide pandemic followed by rapidly rising interest rates and inflation, and yet here we are.  

So, imagine what a nice feeling it would be for your participants to realize that they’ve saved enough to cover an unforeseen circumstance. Remember that a part of being financially well is the ability to turn money from a source of stress to a source of some peace of mind. 

At what cost?

Just as there are two tiers of emergencies (spending and income shocks), there are two tiers at which your participants can save to prepare for each type of shock.

  • For spending shocks, we’d suggest having on hand about $2,000 or half of a participant’s monthly expenses.
  • Income shocks may require a little more work. It’s a good idea here to save at least three to six months of expenses. For day-to-day living (rent, food, etc.), participants will have to rely on these savings. The reality is that participants should plan for an unknown period of no income.

Does that mean a participant has to put $2,000, for instance, into their emergency fund all at once? No. Even $100 is a start. The key is to simply save something. And add to it when possible.

Suggested amount to have available for spending shocks.

Where should the money go?

Obviously, the money your participants save should be liquid and easily accessible. It’s also a good idea to keep this money separate from their other accounts. Two reasons for this:

  1. They’ll know exactly how much they have available to spend if an emergency pops up.
  2. The money won’t get absorbed into other household finances.

A good place for participants to save for spending shocks is in a checking or savings account at their bank. Quick, convenient, tax free.

For income shock savings, participants can consider saving in a taxable vehicle like a brokerage account or a Roth IRA.*

How we can help

If your participants aren’t sure how much to save, or simply don’t want to do the math (and who would?), Vanguard’s My Financial Wellness experience offers a calculator that can do it for them. Participants simply enter their income and expenses, and the calculator will tell them how much to save for each of the two tiers (half of their monthly expenses or three to six months of expenses).

This experience is further enhanced with greater personalization when participants aggregate their outside accounts. We’ll include their outside accounts in our calculations to show in greater detail how much they should be saving for emergencies (big ones and small ones) as well as their progress toward these goals.

Also, Vanguard’s emergency savings action plan for participants helps them prepare for emergencies and supports the experience with personalized nudges and online education articles. For instance, if they don’t have an emergency fund, we’ll offer positive encouragement for them to create one. And if they do have an emergency fund, we’ll let them know if they’ve saved enough in it.

Finally, we continue to invest in capabilities and programs that will help keep your participants more financially prepared for whatever may come down the road. For instance, as you may be aware, the recent SECURE 2.0 legislation is opening the doors to new in-plan emergency savings options. We’re always prepared and ready to work with you and help you consider these new opportunities for your plan.

The road to financial wellness continues . . . 

Expecting the unexpected and building up an emergency fund is just one pillar of your participants’ journey to financial wellness. For more, don’t miss:

Vanguard’s Guide to Financial Wellness
The comprehensive guidebook for helping anyone who wants to know what it means to be financially well and how to get there.

The Path to Financial Wellness Starts Here
Introducing the three key pillars of our financial wellness framework.

Tools to Help Your Participants Shrink High-Interest Debt
Strategies to help your participants control spending and pay off debt.

A SECURE 2.0 Primer
A deep dive into SECURE 2.0 provisions, when they'll be implemented, and how they may help your participants save more toward retirement—and make your plan administration easier.

*Withdrawals from a Roth IRA are tax-free if you are older than age 59½ and have held the account for at least five years; withdrawals of earnings taken before age 59½ or within five years may be subject to ordinary income tax or a 10% federal penalty tax, or both. We recommend that you consult a tax or financial advisor about your individual situation.


  • All investing is subject to risk, including the possible loss of the money you invest.