Record 6% of Americans Raided Their 401(k) for Hardship Withdrawals in 2025 — Frozen Rates and Inflation Are Squeezing Near-Retirees Hardest

A record 6% of American workers tapped their 401(k) accounts for hardship withdrawals in 2025 — up from 5% in 2024, a 20% year-over-year jump — according to data released Wednesday, March 4–5, 2026, from Vanguard’s How America Saves 2026 preview and Fidelity’s Q4 2025 Retirement Analysis. That’s triple the roughly 2% pre-pandemic baseline. It also marks the sixth consecutive annual increase since Congress first loosened hardship withdrawal rules in 2018.

The Numbers Behind the Record

The median hardship withdrawal in 2025 was $1,900. That’s not a lot of money — and that’s exactly the point. These aren’t opportunistic moves. Workers under age 59½ pulling that amount from a traditional 401(k) owe ordinary income tax on the full withdrawal plus a 10% early withdrawal penalty — $190 gone before the money covers a single bill. The distribution permanently shrinks the account balance, and some plan documents still prohibit new contributions for up to six months afterward, compounding the damage.

The top reasons cited: preventing foreclosure or eviction, and covering medical expenses.

Why the Rate Is Climbing — and It’s Not Just Financial Stress

Some of this is structural. The SECURE 2.0 Act of 2022 expanded qualifying hardship categories and allowed plan administrators to rely on a participant’s written self-certification when approving a hardship request, eliminating the prior requirement to collect and retain supporting documentation. Less friction means more approvals. Separately, broader automatic enrollment has pulled more lower-income workers into plans — meaning more people now have a balance to draw on when a financial shock hits.

“With more sponsors auto-enrolling workers, people saving at higher rates, they’re building meaningful balances, and so they have retirement assets available if a financial shock occurs. It’s inadvertently providing a financial safety net because if they hadn’t been auto-enrolled, they might not have had those assets to tap into for an emergency.” — Jeff Clark, Head of Defined Contribution Research, Vanguard

The macro picture, though, is real. Credit card delinquencies hit a 13-year high in 2025. Nonfarm payrolls — excluding health care — fell through much of the year. Layoffs surged to post-pandemic highs. The Federal Reserve cut the fed funds rate three consecutive times in 2025, bringing it down to 3.50–3.75%, and has refrained from changing the benchmark rate so far in 2026. CME FedWatch currently prices in roughly a 70% probability of another hold at the June 17, 2026 FOMC meeting. With inflation recently running near 3% year-over-year, real returns on CDs and Treasuries remain positive — but elevated rates and price pressures continue to strain household budgets for anyone living on a fixed or near-fixed income.

The Sharpest Squeeze — Workers Ages 55 to 63

For workers in the 55–63 age range, a hardship withdrawal is particularly costly. There’s no recovering those compounding years. A $10,000 withdrawal at age 58, growing at a hypothetical 7% annually, represents roughly $19,000 missing from a balance at age 68 — before accounting for taxes or any contribution suspension.

What these workers should be doing instead is the opposite: maxing out the SECURE 2.0 “super catch-up” contribution available exclusively to those ages 60–63. For 2026, that age group can contribute up to $11,250 as a catch-up on top of the standard $24,500 deferral limit — a total of $35,750 annually into a 401(k), 403(b), or governmental 457(b). That window closes permanently at age 64, when the contributor reverts to the standard age 50+ catch-up of $8,000.

The K-Shaped Retirement Picture

The hardship data sits alongside a jarring counterpoint. Average 401(k) balances hit an all-time high of $167,970 in 2025 — up 13% year-over-year — and Fidelity counted a record 665,000 401(k) millionaires in Q4 2025. The S&P 500 gained 16% for the year; bonds added 7%. Meanwhile, the National Institute on Retirement Security reported in early 2026 that the median working-age American has saved just $1,000 for retirement, including those with no plan access at all. The aggregate numbers look healthy. The distribution underneath them does not.

“While there are some signs of heightened financial stress among certain workers, the broad trends in plan design and participant behavior remain strong.” — Vanguard, How America Saves 2026

What to Watch Next

Formal plan amendments incorporating SECURE 2.0 provisions are due by December 31, 2026 for calendar-year plans — meaning some employers still haven’t officially adopted the expanded emergency withdrawal categories. Workers unsure whether their plan allows the $1,000 penalty-free emergency distribution (effective since 2024) or the domestic abuse withdrawal provision should check with their plan administrator now, not at the point of crisis. The next Fed rate decision on June 17, 2026 will also reset the yield calculus on CDs and Treasuries that near-retirees are counting on for income.

Sources

• Fox Business — 401(k) Coverage
• Vanguard — How America Saves (Annual Report Series)
• Fidelity Investments Newsroom — Q4 2025 Retirement Analysis
• IRS — Hardships, Early Withdrawals and Loans
• Investment Company Institute — Quarterly Retirement Market Data, Q3 2025
• National Institute on Retirement Security — 2026 Retirement Savings Report