A record share of Americans are taking emergency withdrawals from their 401(k)s

A recent report from financial services firm Vanguard reveals that a growing number of Americans are dipping into their retirement savings to cover unexpected expenses. In 2025, 6% of individuals enrolled in Vanguard 401(k) plans made hardship withdrawals, up from 5% in the previous year. These withdrawals, permitted by the IRS for specific financial challenges such as medical care or avoiding eviction, reflect the financial strain many households face when confronted with unforeseen bills.

Jeff Clark, head of defined contribution research at Vanguard, emphasizes the importance of building emergency funds to avoid relying on retirement savings in times of need. Despite the rise in hardship withdrawals, retirement accounts are serving as a financial safety net for households lacking other resources. Factors such as stock market gains and design improvements in retirement plans have contributed to larger 401(k) balances, with the average account balance reaching $168,000 by the end of 2025, a 13% increase from the previous year.

Congress has also enacted laws to facilitate hardship withdrawals, allowing employees to access funds for situations like domestic abuse or federally declared disasters. The median withdrawal amount in 2025 was $1,900, with top reasons for tapping into 401(k) accounts including avoiding foreclosure or eviction, covering medical expenses, tuition, home repairs, and purchases.

However, the prevalence of hardship withdrawals underscores a broader issue of inadequate retirement savings among Americans. Research shows that the median working-age individual has only saved $1,000 for retirement, highlighting the need for increased financial preparedness. A report from the National Institute on Retirement Security indicates that many Americans lack sufficient retirement savings, with some retirees even returning to the workforce due to financial pressures.

In conclusion, while retirement accounts can provide a valuable financial cushion in times of crisis, it is crucial for individuals to prioritize building emergency funds and saving for retirement to ensure long-term financial stability. The data from Vanguard’s report serves as a reminder of the importance of financial planning and preparedness for future financial challenges.