When it comes to retirement savings, not everyone can bask in the good fortune of watching their accounts balloon when markets rise. They need the money right now.
According to Vanguard Group’s “How America Saves 2026” report, a record 6% of the firm’s 5 million workers in 401(k) plans plucked money from their accounts to pay for financial hardships. That’s up from 4.8% in 2024, 3.6% in 2023, and triple the number who did so pre-pandemic.
It was the sixth straight year that hardship withdrawals increased, according to the Vanguard researchers. In addition, 13% of participants had a loan outstanding at year-end 2025, on par with 2024.
To be clear, most people are not treating their retirement accounts like piggy banks. The most common reasons for withdrawals: staving off foreclosure or eviction from a home, followed by medical expenses.
The average amount of a withdrawal: $1,900. That’s not an eye-popping amount, but it can have repercussions on future retirees’ financial security. If you invest that amount at an annual return of 8.5%, in two decades it could climb to an estimated $9,712.94 without any additional contributions.
Read more: How much do you really need to save for retirement?
But it’s hard to grasp that math when debt collectors are calling.
Aside from reducing retirement savings, 401(k) withdrawals trigger income tax on any previously untaxed money and an additional 10% tax if the participants were not at least 59 ½, with a few exceptions.
Here’s where it gets interesting. In the last couple of years, new laws have eased the process of taking hardship withdrawals from 401(k) accounts for many workers.
The Bipartisan Budget Act of 2018, for example, eliminated the mandatory requirement to use up all available 401(k) loans before taking a hardship withdrawal. The law makes that condition optional for employer plans.
Since 2024, under the Secure 2.0 legislation, workers have been able to pull up to $1,000 annually from a retirement account for specific emergency needs without owing the 10% early distribution penalty. And if you agree to pay it back within three years, you might not face a tax bill on the sum, provided the withdrawal can be tagged to a personal or family emergency.
Socking away money in an employer-provided retirement account is a no-brainer if you don’t need the money to pay your bills today. But many lower-income workers, especially younger workers living from paycheck to paycheck, don’t always have that luxury.
Financial pressures come from all sides, said Jeff Clark, head of defined contribution research at Vanguard. There’s student loan debt, rising healthcare costs, and soaring credit card debt accruing at double-digit revolving interest rates.
