There are few things that can derail your financial progress faster than an emergency—or a pandemic. Your partner gets furloughed at work. Your car goes kaput. Or your child takes a header off the sofa and breaks an arm. Suddenly, you're looking at a pile of unexpected bills, any one of which could impact your ability to reach important financial goals.
What about you? Many workers are unprepared for short-term cash needs, according to a recent survey.1
Enter the emergency fund. An emergency or "rainy-day" fund is the money you sock away specifically for unplanned events. Those savings can help you avoid having to take on high-interest credit card or other debt or possibly paying taxes and penalties on an early withdrawal from your retirement savings plan should a financial surprise hit.2 So, how do you build an emergency fund and still save for retirement, especially in today's challenging environment? Start by asking yourself these three questions:
1. How much do I need? Setting aside enough money to cover three to six months of expenses in a rainy-day fund is a typical recommendation. However, the amount that's right for you should be based on your own essential expenses, such as rent/mortgage, insurance, utilities and groceries, among others. For example, if you're single and living at home, you may need less than if you're married with kids and have a mortgage to cover each month.
2. How do I build it? Once you set a goal for your emergency fund, decide how much you can set aside each week, month or pay period. If you're early in your career or money is tight, pick an amount that you can put away on a regular basis, and commit to it. Then, set up recurring transfers from your paycheck (if your employer permits it) or your checking account to a savings account that you earmark specifically as your emergency fund. To boost your emergency savings even faster, consider adding all or part of any extra cash that you may have at the end of the month, after you've contributed to your employer-sponsored retirement plan and paid your bills.
- 3. When should I use my emergency fund? Set some guidelines for what constitutes an emergency or unplanned expense, and then don't feel bad about using that money should you need it. Just be sure to continue adding to your account so it is replenished for whatever comes next.
The CARES Act permits qualified individuals to take distributions of up to $100,000 from their retirement plans or IRAs without having to pay any penalty tax normally assessed on early withdrawals. Unless those amounts are repaid, however, individuals will have to pay regular income tax on those distributions.
You should consider the investment objectives, risks, and charges and expenses of the variable annuity contract and the underlying investment funds carefully before investing. This and other information is contained in the contract prospectus or brochure and underlying funds prospectuses and summary prospectuses, which can be obtained by calling or visiting mutualofamerica.com. Read them carefully before investing.
Mutual of America's group and individual retirement products are variable annuity contracts and are suitable for long-term investing, particularly for retirement savings. The value of a variable annuity contract will fluctuate depending on the performance of the Separate Account investment options you choose. Upon redemption, you could receive more or less than the principal amount invested. A variable annuity contract provides no additional tax-deferred treatment of benefits beyond the treatment provided to any qualified retirement plan or IRA by applicable tax law. You should consider a variable annuity contract's other features before making a decision.