Vanguard recently released its 2025 report on how America saves. It revealed that a record 4.8% of 401(k) holders took a hardship withdrawal in 2024, up from 1.7% in 2020.
Be Aware: I’m a Financial Expert: This Is the No. 1 Mistake Americans Make With Their 401(k)
Check Out: Here’s the Minimum Salary Required To Be Considered Upper Class in 2025
So why are more Americans raiding their retirement accounts? The report listed the following reasons for hardship withdrawals.
Over a third (35%) of account holders who took a hardship withdrawal listed avoiding foreclosure or eviction as their motivation.
“Traditionally, homeowners in financial distress might refinance or tap home equity to stay afloat,” said Josh Richner of FaithWorks Financial. “But with mortgage rates hovering near 7%, refinance volume has dropped to its lowest level since the mid-1990s. That leaves many turning to the only sizable resource they can access: their retirement savings.”
Read Next: David Letterman’s Top Reason To Rethink Retirement: Do Experts Agree With His ‘Myth of Retirement’?
At 30%, medical expenses made up the second most common driver of hardship withdrawals last year.
It doesn’t help that many Americans have little to no emergency savings. A study by GOBankingRates found that half of Americans have $500 or less in savings.
Vanguard reported that 16% of hardship withdrawals went to cover a home repair or purchase.
Brett Daniel, founder of Daniel Safe Money Retirement Solutions, cautioned homebuyers against raiding their retirement savings. “While purchasing a home can make a great financial investment, using retirement savings for the down payment or home repairs is risky due to the fees involved on the amount withdrawn from your 401(k).”
It also leaves you with less money in financial investments to compound throughout your career and pay for your retirement.
Another 14% of hardship withdrawals went to covering tuition costs, and 5% were uncategorized.
While some of those withdrawals helped the account holders themselves get degrees and improve their future earnings, some likely went to account holders’ children. But most financial experts agree that’s a dangerous path, as children have many options to fund their college degree, but retirees have just one: their savings.
“Parents looking to help with tuition should look at 529 college savings plans or Coverdell Education Savings Accounts, rather than draining their own retirement accounts,” Daniel said.
Vanguard noted that it is now easier to request a hardship withdrawal, due to a 2019 budget act, which could account for some of the increase.
