What's the greatest threat to your retirement nest egg?

A mountain of credit card debt? Perhaps you haven't gotten a raise in over a decade. What about subpar returns from the stock market?

Hooded and mysterious man

Image source: Getty Images

All of these things are substantial threats to your retirement, but the greatest threat by far can be summed up in two words: financial fragility. There are two parts to said fragility: debt, and lack of liquid funds on hand in the form of emergency savings.

How fragility affects your retirement

Let's start by defining exactly what "financial fragility" means. Borrowing heavily from the ideas that author, academic, and trader Nassim Taleb has put forth in his best-selling books The Black Swan, and Antifragility, we'll say this: Someone is financially fragile when exposure to any type of stress, shock, loss, failure, or surprise would create a situation where he or she would be significantly impaired financially, to the point of not being able to make ends meet.

On the surface, it might seem like what I'm talking about here is so simple it's not worth covering: We'd all clearly suffer if we were exposed to such things. Consider the list of potential live events that could fall under this category:

  • You lose your job because someone will do it for cheaper overseas.
  • You finding out you have stage 3 cancer.
  • You discover that the used car you bought is a clunker and will need over $5,000 in immediate repairs.
  • Your basement floods during a thousand-year storm and needs to be completely gutted.

This is just a sampling. The list could go on and on. But the fact is that we don't necessarily have to be so negatively affected by such events. There are two ways to protect ourselves: insurance (health, auto, home, and so on), and a healthy emergency savings stash.

When it comes to the latter, we are woefully unprepared in America. Think for a minute about how much cash you have on hand that you could use immediately if you had to -- without touching your retirement accounts.

What's the number? Write it down.

Now, compare yourself to where the average American stands right now. These results, taken from Transamerica's 17th Annual Retirement Survey, are broken down by both generation and income level. Note that "low-income" qualifies as earning less than $50,000 per year in a household, "high-income" means over $100,000, and "middle income" is between the two.

How Big Is Your Emergency Fund?
Create column charts

Source: Transamerica

Let's put this in perspective: Even the least conservative of financial planners would say that you should have enough money set aside to make ends meet for three months without any income. If the median American family were to pare down expenses to just cover housing, food, healthcare and transportation during that time, such an emergency fund would need to be $10,000 -- according to the Bureau of Labor Statistics' Consumer Expenditure Survey .

How many households actually have that much saved up?

Among milleninals, Gen Xers, and baby boomers, 26%, 30%, and 43% -- respectively -- would pass this test. Broken down by low, medium, and high income levels, 15%, 30%, and 53% of such households -- respectively -- could come up with that cash on a moment's notice. From this, it seems reasonable to assume that around two-thirds of U.S. households simply don't have enough saved in emergency accounts. They are financially fragile.

Why this is such a threat to your retirement

Of course, this only matters if such a terrible thing (losing your job, having a medical emergency, and the like) actually happens to you. "I'll only experience the pain of financial fragility in such situations," you might argue. And you'd be right.

But you'd also be putting yourself at the whim of fate. And while there are some things we simply can't control in life, avoiding financial fragility is something we do have a measure of control over. And when the unexpected eventually happens, you'll be forced to find out how to pay for things. Often times, raiding your retirement savings is the best option.

Man watching money flow out of his pocket and down a hole.

Image source: Getty Images.

In an April 2016 article I wrote for The Motley Fool, I took data from the U.S. Census Bureau, Vanguard, and Boston College's Center for Retirement Research to figure out how much the average American family's nest egg falls as a result of raiding its retirement account. Specifically, I looked at what happened with in-service withdrawals, cash-outs, and loans taken against a retirement portfolio.

In the end, it was much more than you might think: $94,000 in lost money!

Think about it: When you take money out of your retirement account, you not only lose that money, but you lose all of the growth that that money would have experienced as well.

That's not to say that you should never use the retirement money for other purposes. For instance, my wife and I socked away everything saved in Roth IRAs for years. We used some of that money as a down payment for a house. But because of our frugal living and the good luck of not yet having major financial emergencies, our nest egg is still very healthy for our age.

If you have anything left after making ends meet on the most basic expenses -- food, housing, necessary transportation, and insurance -- that money should go toward building up an emergency fund. By having it, you become financially robust. Not only will your nest egg survive, but your robustness will allow you to weather "the slings and arrows of fate," and potentially coming out the other side even stronger.

The Motley Fool has a disclosure policy.