Americans tap retirement funds at record rates as mounting financial stress takes toll

2026-03-05 20:22:46

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A record number of Americans tapped into their 401(k) retirement savings for hardship withdrawals last year due to financial challenges, new data shows.

Vanguard Group reported that 6% of participants in 401(k) plans administered by the firm took hardship withdrawals in 2025, up from 4.8% in 2024.

That figure is also well above the prepandemic average of about 2% of 401(k) plan participants per year who made hardship withdrawals from their retirement plans, Vanguard said.

The report noted that hardship withdrawals can be a sign of financial stress as workers tap into their 401(k) as a safety net that can help them cover unanticipated expenses or emergency costs.

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IRA hardship withdrawals trended higher in 2025 as some savers encountered financial stress, Vanguard found. (iStock)

Vanguard added that the process for requesting a hardship withdrawal from 401(k) plans has become easier to do, which could explain the uptick in withdrawal activity.

“Given that it’s now easier to request a hardship withdrawal and that automatic enrollment is helping more workers save for retirement, especially lower-income workers, a modest increase isn’t surprising,” the firm wrote.

“And for a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that may not otherwise have been available without plan-implemented automatic solutions,” Vanguard continued.

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Vanguard’s report found that foreclosures, eviction and medical expenses were the leading reasons for 401(k) hardship withdrawals. (Mike Mergen/Bloomberg via Getty Images)

Avoiding foreclosures, eviction and medical expenses were the leading reasons that 401(k) participants made hardship withdrawals, while the median size of the withdrawal was $1,900, according to Vanguard.

The report found that participants were focused on financial goals throughout 2025 and saw average account balances rise by 13% due to positive market performance. Vanguard noted that 45% of 401(k) participants increased their deferral rate on their own or through an automatic annual increase.

“While there are some signs of heightened financial stress among certain workers, the broad trends in plan design and participant behavior remain strong,” Vanguard said, noting that automatic contributions have boosted savings and investment outcomes.

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Congress reformed the law to make it easier for Americans to make hardship withdrawals from 401(k) plans in 2018. (Al Drago/Getty Images)

The use of 401(k) loans – an alternative to hardship withdrawals – was flat and remained below prepandemic levels.

Congress reformed the process for taking 401(k) hardship withdrawals in 2018, making it easier to do so by eliminating a requirement that a plan participant take a loan out first before being allowed to make a withdrawal.

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Vanguard found that hardship withdrawals have risen six years in a row after the change was made.

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