Liquid Savings Important for Unexpected Emergencies

However, the low-yield savings accounts, CDs, and money market funds used by these cautious investors are causing considerable dissatisfaction with their meager returns, Metlife found.  The poll, “Money on the Sidelines,” found that of the 58% who are most concerned about the cost of unexpected emergencies, half of this group had at least one unexpected expense in the past year of $2,000 or more, and nearly three in ten (29%) had between two and five major emergency expenditures.  Not wanting to tie up funds up in a long-term investment (43%) and a volatile stock market (31%) were other major concerns spurring the desire to have liquid funds on hand.

The study also found:

• While 65% of more-affluent Americans are using mutual funds as a vehicle to save for retirement, a hefty 52% are using bank savings accounts, 51% are using money market accounts, and 38% are using CDs. Other savings vehicles used include Treasury/savings bonds (21%), municipal bonds (20%), and fixed annuities (19%).  
• The investors are dissatisfied with the slim returns from their liquid accounts including CDs (51%), bank savings accounts (58%) and money market accounts (46%).  
• In addition to wanting to keep assets liquid to cover household emergencies and concerns about the stock market’s volatility, these investors are keeping assets liquid in case they need to help a friend or family member (26%) and because other investment options are too risky (20%)  
• Almost one-fifth of affluent investors (19%) say they’re making more investments in CDs or money market accounts. 
• When looking for a tax-advantaged saving vehicle, the more-affluent would consider tax-exempt municipal bonds (63%), fixed annuities (28%), and variable annuities (23%). 

Compared to the general population, affluent investors are more likely to have changed the way they invested for retirement as a result of the financial crisis. More than half (54%) of this group said they changed the way they invest versus 29% of the general population. Cash management concerns have led many of the more well-off investors to effectively leave some of their retirement finances in highly liquid accounts.

According to the poll:

• While 65% of more-affluent Americans are using mutual funds as a vehicle to save for retirement, a hefty 52% are using bank savings accounts, 51% are using money market accounts, and 38% are using CDs. Other savings vehicles used include Treasury/savings bonds (21%), municipal bonds (20%), and fixed annuities (19%).  
• However, more- affluent investors are dissatisfied with the slim returns from their liquid accounts including CDs (51%), bank savings accounts (58%), and money market accounts (46%).  
• In addition to wanting to keep assets liquid to cover household emergencies and concerns about the stock market’s volatility, these investors are keeping assets liquid in case they need to help a friend or family member (26%) and because other investment options are too risky (20%)  
• Almost one-fifth of affluent investors (19%) say they’re increasing investments in CDs or money market accounts. 
• When looking for a tax-advantaged saving vehicle, the more-affluent would consider tax-exempt municipal bonds (63%), fixed annuities (28%), and variable annuities (23%). 

Among more-affluent investors, general uncertainty around retirement planning in today’s environment is evident. Weak economic growth was mentioned by one-third as the economic factor that concerned them most in planning for retirement, followed closely (29%)  by government budget deficits. More than one-half (52%) expressed concern about having adequate and affordable medical care in retirement.

The MetLife Poll was conducted online for MetLife by Harris Interactive between September 9 and 20, 2010 among a nationally representative sample of 1,858 U.S. residents, with two quota groups—adults, 45 years of age or older with investable assets of at least $200,000 (not including residence) or adults of the same age with less than $200,000 in assets.