The truth behind 401(k) withdrawal numbers: People aren't being reckless - they're desperate

By Beth Pinsker

The good news is that low-income workers taking out hardship withdrawals are still saving, thanks to auto-enrollment

If you had a choice between eviction or taking money out of your 401(k) to pay what you owe, which would you choose?

Among workers making less than $50,000 who faced this tough decision in 2025, an increasing number took money out of their 401(k) accounts, according to new data from Vanguard. This used to be either impossible or really hard to do - but since Congress and individual companies have made the rules easier, Vanguard said the number of people taking hardship withdrawals last year was up to 6%. The number has grown steadily by 1% a year since 2021, when it was 2%.

When Vanguard released this data last week as part of a preview of its annual "How America Saves" report, it turned many heads. Vanguard released a follow-up report on Wednesday on "How America withstands financial hardships" that takes a deep dive behind the headlines.

The median hardship-withdrawal amount in 2025 was $1,900, and most workers only took one in a year, which Fidelity said would be incidental over a 30- or 40-year career. But 12% took four or more hardship withdrawals, which pointed to a more chronic financial problem for that subset of workers.

Given the breakdown of who takes the most withdrawals and what those hardships are, the most common scenario is a worker making less than $50,000 and unable to meet their monthly housing payment. This accounted for 40% of the withdrawals for those making less than $50,000. That group's next-most common reason for needing the money was medical expenses. Another 10% went for home repairs, and 10% for education expenses.

The reasons flip in importance at the other end of the income spectrum. Those making $150,000 or more, who took out only 1% of the hardship withdrawals, were most apt to use that money for tuition payments, while 25% used it for housing payments and 23% for medical expenses.

Vanguard further found that participants who had access to emergency savings accounts or health savings accounts (HSAs) took fewer withdrawals. Overall, the rate was 69% less; for those earning less than $50,000, it was 43% less. Participants in plans that offered Vanguard's proprietary Cash Plus Account for emergency savings were 16% less likely to take hardship withdrawals.

"It underscores the importance of building emergency savings alongside retirement savings," said David Stinnett, head of strategic retirement consulting for Vanguard. Other research from Vanguard has shown how much emergency savings accounts save participants from all sorts of retirement-savings pitfalls in addition to hardship withdrawals, like loans and account liquidations at job changes.

"Even modest emergency savings of at least $2,000 can improve financial well-being and reduce reliance on hardship withdrawals," Stinnett noted.

Auto-enrolled workers still saving

The good news in all of this is that the workers who are taking the most withdrawals seem to correlate in all the research with the workers who would not have been enrolled at all in 401(k) plans previously.

Auto-enrollment puts workers into 401(k) plans when they start a job; they have to opt out to leave the plan. In plans where this is in force, 6.3% took withdrawals, in contrast to 4.9% in plans where the retirement plan is optional. At the same time, the rules got easier. When workers can self-certify a claim - meaning they can ask for the money by saying that they need it - 8.5% take withdrawals. When workers have to document a claim, the rate goes down to 2.5%

Workers cannot take out their full balance for a hardship withdrawal and they cannot overdraw, so there are some guardrails. Any money withdrawn from pretax accounts is counted as income for the year, but if the withdrawal is qualified, there's no 10% early-withdrawal penalty for those under age 591/2.

That's why experts like Stinnett are not yet worried about the hardship-withdrawal numbers going to 6% from 2%, especially when average balances are going up.

"When viewed holistically, these trends highlight a retirement system that is stronger and more resilient than ever," he said.

Got a question about investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at beth.pinsker@marketwatch.com. Please put "Fix My Portfolio" in the subject line.

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-Beth Pinsker

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03-14-26 1401ET