Setting aside money in a rainy-day fund can boost retirement prospects for hourly workers with inconsistent income streams. Emergency funds prevent tapping into 401(k) accounts for unforeseen expenses. Those with $2,000 in savings are less likely to take loans or withdraw funds early, according to Vanguard research.

Policymakers see “leakage” from 401(k) plans as a major obstacle to retirement security. Early withdrawals incur tax penalties and rob investors of years of potential earnings. Estimates suggest $2 trillion more would be saved in 401(k) plans over 40 years if premature cash-outs were avoided.

Leakage is a significant concern for hourly workers, who are less likely to have emergency funds and more prone to tapping their 401(k) savings early. Even with similar incomes, hourly workers are at higher risk due to volatile income streams. Vanguard’s research highlights this trend.

Households are advised to build an emergency fund covering three to six months of expenses. Financial planners suggest using a high-yield savings account or money market fund for better interest rates. Starting small with $10 to $25 per paycheck can grow over time. Automating savings and saving windfalls are key strategies.

Read more at CNBC: Emergency funds are a ‘security blanket’ for 401(k) savings: Vanguard