Something strange happened with American retirement accounts in 2025. Balances hit an all-time high. So did the number of people raiding those same accounts just to survive.
Vanguard’s newest report found the average 401(k) balance climbed to $167,970 by the end of 2025, a record. At the same time, 6% of plan participants took a hardship withdrawal that same year, also a record, and triple the rate from before the pandemic.
Those two numbers shouldn’t move together. One says people are saving more than ever. The other says a growing share of them can’t make it through a crisis without pulling from that same account.
Here’s what’s driving the gap. According to Yahoo Finance’s coverage of Vanguard’s How America Saves report, layoffs surged to their highest level since the pandemic in 2025, and credit card delinquencies hit a 13-year high. Rising retirement balances came mostly from strong stock market gains and automatic enrollment features, not from people having more spare cash to set aside. The savings and the desperation grew from two completely different sources.
Most hardship withdrawals aren’t going toward anything optional. The IRS recognizes six approved reasons for a hardship withdrawal, and the top ones are medical bills, preventing eviction or foreclosure, and funeral costs. This isn’t a luxury purchase problem. It’s people using retirement money as a last resort because nothing else was left.
Worth knowing: an emergency fund exists specifically to prevent this exact situation from happening to your retirement money.
Your Emergency Fund Isn’t What It Used to Be. Here’s What Changed.
The real cost of a hardship withdrawal isn’t just the tax bill, though that part hurts too. A TheStreet analysis of the Vanguard data found that a 35-year-old who pulls out $10,000 today loses more than $76,000 in future growth by retirement age, assuming a standard 7% annual return. A 45-year-old taking a $20,000 withdrawal loses roughly $77,400 in potential growth over the shorter remaining timeline. Unlike a 401(k) loan, a hardship withdrawal can never be paid back into the account.
Not every financial planner sees this trend as purely alarming. Some point out that the same report shows record numbers of employees enrolled in retirement plans, and stronger long-term investing behavior overall, with only 5% of participants making trades even during market volatility. The system is working as designed for a lot of people. It’s the growing minority pulling out early that’s the concerning half of the story.
Think about: the earlier you build a real safety net outside your retirement account, the less likely you are to ever need to touch it early.
You’re Allowed to Save an Extra $7,500 for Retirement. Most People Don’t.
If you’re facing a real emergency and a hardship withdrawal feels like the only option, a few alternatives are worth checking first. A 401(k) loan lets you pay yourself back over time instead of losing the money permanently, though it comes with its own risks if you leave your job before repaying it. Some employers also offer emergency savings features built directly into the retirement plan now, specifically designed to prevent people from needing to touch their long-term savings at all.
Nobody takes money out of their own retirement account because they want to. It’s usually the last option left standing after everything else has already been tried.
| Metric | 2020 | 2024 | 2025 |
|---|---|---|---|
| Hardship withdrawal rate | 2% | 5% | 6% (record) |
| Average 401(k) balance | Lower | Rising | $167,970 (record) |
| Cost to a 35-year-old on $10K withdrawal | — | — | ~$76,000 in lost growth |
A record balance and a record withdrawal rate happening in the same year isn’t a contradiction. It’s a picture of an economy where some people are getting ahead, and others are barely holding on, using the same accounts to do both.
Have you ever had to consider pulling money from a retirement account early, and what did you end up doing instead?
Disclaimer: This article is for general informational purposes only and does not constitute financial or tax advice. Retirement account rules and tax consequences vary by individual circumstances. Consult a licensed financial advisor or tax professional for guidance specific to your situation.