Vanguard Group reported a record increase in Americans tapping their 401(k) retirement savings for hardship withdrawals in 2025, with 6% of participants in plans administered by the firm making such withdrawals, compared to 4.8% in 2024. This figure is significantly higher than the prepandemic average of about 2% per year, indicating a notable rise in financial stress among workers [1]. The leading reasons for these hardship withdrawals were foreclosures, eviction, and medical expenses, with the median withdrawal size at $1,900 [1].
Vanguard attributed the uptick in hardship withdrawals partly to the easier process for requesting them, following Congressional reforms in 2018 that eliminated the requirement for participants to take a loan before making a withdrawal. The report also noted that automatic enrollment and plan-implemented solutions have helped more workers, especially those with lower incomes, save for retirement, and that hardship withdrawals may serve as a safety net for those facing acute financial stress [1].
Despite the increase in hardship withdrawals, the report highlighted positive trends in retirement savings. Average account balances rose by 13% in 2025 due to positive market performance, and 45% of 401(k) participants increased their deferral rate either on their own or through automatic annual increases. Vanguard emphasized that while some workers are experiencing heightened financial stress, overall plan design and participant behavior remain strong, with automatic contributions boosting savings and investment outcomes [1].
The use of 401(k) loans, an alternative to hardship withdrawals, remained flat and below prepandemic levels, suggesting that the easier withdrawal process is the preferred option for those in need. Vanguard found that hardship withdrawals have increased for six consecutive years since the 2018 reform [1].
CONCLUSION
The record rise in 401(k) hardship withdrawals signals increased financial stress among American workers, but positive market performance and improved plan design have led to higher average account balances and increased savings rates. While the trend warrants attention, overall retirement savings behavior remains robust, mitigating broader market concerns.