Even with stocks climbing and average 401(k) balances rising, a record share of Americans are still forced to raid their retirement just to keep the lights on.
Story Snapshot
- Vanguard data show 6% of 401(k) participants took hardship withdrawals in 2025, tripling the pre-pandemic norm near 2%.
- Average account balances rose to about $168,000 by the end of 2025, underscoring the gap between market headlines and household reality.
- Top hardship reasons include avoiding foreclosure/eviction, medical costs, and tuition—core expenses for family stability.
- Congress has repeatedly loosened rules since 2018, making retirement accounts easier to tap during emergencies.
Record withdrawals collide with “strong market” headlines
Vanguard reported that 6% of 401(k) participants took hardship withdrawals in 2025, up from about 5% the year before and far above the pre-2020 norm near 2%.
That spike is happening alongside a strong stock market that pushed the average 401(k) balance to roughly $168,000 at the end of 2025, a 13% jump year over year. The numbers point to a split economy: asset prices are up, while household stress is still rising.
Vanguard also broke down why families are pulling money. About 36% of hardship withdrawals were used to avoid foreclosure or eviction, 31% for medical expenses, and 13% for tuition.
Those categories are not luxury spending; they are basic obligations tied to housing, health, and keeping kids on track.
When working families use retirement money for emergencies, the hidden cost is time: years of compounding growth disappear, and the balance cannot simply be “made whole” later.
Inflation, falling real wages, and rising debt set the trap
The run-up in hardship withdrawals tracks closely with the cost-of-living pressures that built during the early 2020s.
In late 2022, consumer inflation was still running at 6.5% year over year—about triple pre-pandemic averages—while inflation-adjusted average hourly earnings were down 1.7% compared with the year prior.
At the same time, household debt grew at its fastest pace since 2008, including a sharp jump in credit card balances. Savings rates also sank, leaving fewer families with a cushion.
Washington made it easier to tap retirement savings—again and again
Several policy changes lowered the barriers to early access. In 2018, Congress removed the requirement that workers first take a 401(k) loan before a hardship distribution.
In 2020, pandemic-era rules allowed certain withdrawals up to $100,000 without the standard 10% early-withdrawal penalty.
In December 2022, lawmakers removed the requirement to submit documentation proving hardship and created penalty-free access for some disaster-related withdrawals up to $22,000.
SECURE 2.0 also added a penalty-free “emergency” withdrawal option up to $1,000 annually.
The retirement security bill comes due later
Hardship withdrawals can offer immediate relief, but they carry steep long-term tradeoffs. For workers under age 59½, a hardship distribution generally triggers income taxes and can trigger a 10% penalty unless an exception applies.
More importantly, the withdrawn money usually cannot be repaid into the plan the way a loan can, permanently shrinking the nest egg.
Financial experts warn this trend threatens retirement readiness, especially for middle- and lower-income workers who have fewer ways to rebuild savings.
Auto-enrollment expands access, but exposes financial fragility
Vanguard’s retirement consultants have noted that auto-enrollment can pull more lower-paid workers into 401(k) plans, which is good for participation but can also raise the number of people who later take hardship withdrawals.
That dynamic matters because the data show that hardship usage concentrates among households with less emergency savings and greater exposure to volatile expenses such as rent hikes, medical bills, and car repairs.
If a 401(k) becomes the default emergency fund, the plan’s primary purpose—retirement income—gets quietly downgraded.
A record share of Americans are taking emergency withdrawals from their 401(k)s. https://t.co/kvozxbNtS2
— CBS News (@CBSNews) March 6, 2026
For policymakers, the numbers create a dilemma. Easier access can help families avoid eviction or cover urgent medical care, but it also normalizes treating retirement accounts as a short-term line of credit.
The research does not prove one single cause—withdrawals rose through multiple years and conditions—but it does show a consistent pattern: as household budgets tighten, workers reach for the one pool of money they can still access.
That reality is a warning sign for anyone who cares about self-reliance and financial independence.
Sources:
401k hardship withdrawals hit record high amid cost-of-living crunch
401(k) hardship withdrawals rise, Vanguard report finds
Record number of 401(k) hardship withdrawals seen in 2022
Record Share Of Americans Taking Hardship Withdrawals From Their 401(k)s
401(k) hardship withdrawals hit record high last year and rebuilding for retirement could be tough
