If you want to shore up your finances, experts generally agree on a best first step — building an emergency savings fund.
Yet data consistently shows setting aside a meaningful amount of cash to turn to when the unexpected happens is difficult for many individuals.
More than half of workers — 55% — do not have enough savings set aside to cover a $500 emergency expense, according to a recent survey from SecureSave, a provider of workplace emergency savings accounts.
That cash shortfall has prompted significant financial strain, according to the survey of 1,028 workers conducted in June. The results found that 41% of respondents said they had skipped a necessary expense such as medical care, food or car repairs because they did not have enough savings to cover it.
"We have danger more than we've had before, because it's the workers that we know have a job, they have a paycheck coming in, and they are still not making it," said personal finance expert Suze Orman, co-founder of SecureSave.
Other studies also show setting aside extra cash can be an elusive goal.
The Federal Reserve's 2025 report on the economic well-being of U.S. households found that 63% of adults could cover a $400 emergency expense via cash, savings or a credit card paid off at the next statement. That share has not changed in the past three years following a high of 68% in 2021.
The Fed's survey is based on responses from more than 13,000 consumers and was fielded in October.
Consumers show signs of strain
Recent data indicate that some consumers' budgets are being squeezed.
The latest consumer price index data shows the annual inflation rate was 3.4% as of July, with prices for a range of goods and services moderating. Yet that is still above the Federal Reserve's 2% target. Meanwhile, average gas prices are now over $4 per gallon, the highest level ever recorded for this time of year, according to GasBuddy, an app for tracking gas prices.
Total household debt was $18.8 trillion in the second quarter, according to the Federal Reserve Bank of New York, up $4.6 trillion since the end of 2019 before the pandemic recession. That tally was down 0.1%, or $13 billion, from the first quarter, the central bank notes in its latest household debt and credit report.
Auto loan balances rose to $1.71 trillion in the second quarter, according to the Federal Reserve, while credit card balances climbed to $1.26 trillion — near the $1.28 trillion all-time high for the fourth quarter of 2025. New delinquencies for both auto loans and credit cards are at elevated levels, the central bank said.
As the cost of living has climbed, retirement savers have increasingly turned to hardship withdrawals, which let them access that money for qualifying purposes like emergencies, as well as to help pay for college, medical expenses or the purchase of a primary home, according to Vanguard.
The share of Vanguard defined contribution plan participants who have taken hardship withdrawals increased to 6% in 2025, up from 2% in 2020. Inflation and rising interest rates may have contributed to the financial strain, according to a recent Vanguard report. Retirement plan designs may also encourage that behavior, according to the firm.
"Leakage from retirement accounts is becoming a bigger and bigger problem," said Shai Akabas, vice president of economic policy at the Bipartisan Policy Center, a Washington think tank that promotes bipartisanship.
"A primary solution to that is finding tools to help employees save for emergencies," he said.
Secure 2.0 opened new paths for emergency savings
A law passed by Congress in 2022 known as Secure 2.0 included changes aimed at helping employers encourage emergency savings.
Participants in defined contribution plans may withdraw up to $1,000 per calendar year for emergency expenses without penalties. However, that sum generally must be repaid before any additional emergency withdrawals are made within the following three years.
Additionally, the law also allows for the automatic enrollment of workers into pension-linked emergency savings accounts, or PLESAs, with annual contributions of up to $2,600 for 2026. Those can be withdrawn free of taxes and penalties.
Just 4% of 401(k) plans allow the $1,000 emergency 401(k) withdrawals, according to a recent Vanguard analysis.
PLESAs "really haven't gone anywhere" due to the time it has taken for regulations to be released and for record keepers to develop the ability to provide the benefit, said Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute, a provider of data and research on employee benefit programs.
In April 2025, T. Rowe Price announced it was the first to launch pension-linked emergency savings accounts.
The workplace emergency savings accounts that have gained traction are separate from 401(k)s and other retirement savings plans, Copeland said.
Those include offerings from companies such as SecureSave and Sunny Day Fund, as well as efforts by asset managers such as Fidelity and BlackRock.
For employers, emergency savings can be an inexpensive benefit to provide, particularly if they are just facilitating the payroll deduction, though they may opt to contribute to those savings, Copeland said.
"When they provide the benefit, they do see that people are participating at pretty high rates and taking advantage of it," he said.
Legislation to address emergency savings gap
"When it comes to Secure 2.0, the biggest impact that that legislation had was in drawing attention to this problem," Akabas said of Americans' emergency savings shortfall.
In the past several years, there has been an "exponential increase" in employers providing emergency savings plans, he said.
Further legislation may help advance those offerings, Akabas said.
Policymakers could encourage emergency savings by making all workplace accounts eligible for automatic enrollment, Akabas said.
One bipartisan proposal, the Emergency Savings Enhancement Act, would increase the maximum annual contribution limit for PLESAs to $5,000 and also expand participation eligibility to employees who meet retirement plan requirements, including highly compensated employees. In 2026, a highly compensated employee is someone who receives more than $160,000 in compensation from a business or who owns more than 5% of the interest in a business, per the IRS.
That bill was recently advanced out of the Senate Committee on Health, Education, Labor and Pensions.
