Americans finished 2025 with more money in their retirement accounts than at any point in history. The average Vanguard 401(k) balance hit a record $167,970, up 13% in a single year, driven by strong stock market gains and the quiet mechanics of automatic enrollment. The headline numbers look encouraging.
What sits underneath them is a different story entirely, and Vanguard is now warning that a growing number of workers are erasing years of retirement progress without fully understanding what they have done.
What Vanguard’s data shows about 401(k) hardship withdrawals in 2025
Vanguard’s 2026 report on Americans’ savings habits found that 6% of participants in its 401(k) plans took a hardship withdrawal in 2025, up from 4.8% in 2024 and triple the roughly 2% annual rate recorded before the pandemic. It marks the sixth consecutive annual increase in the rate of hardship withdrawals since Congress loosened the rules in 2018 by eliminating the requirement to take out a 401(k) loan before making a withdrawal.
The median withdrawal in 2025 was $1,900. That number understates the real cost. Unlike a 401(k) loan, a hardship withdrawal does not get repaid.
The money is gone from the account permanently, and with it goes every dollar of compounding growth that $1,900 would have generated between 2025 and retirement. For a worker in their 30s, that figure could represent $10,000 or more in lost retirement wealth, according to Axios.
Jeff Clark, Vanguard’s head of defined contribution research, told Investopedia that the rising incidence of hardship withdrawals highlights the importance of setting aside money for emergencies outside retirement accounts.
“More workers are automatically enrolled, saving at higher rates, and building meaningful balances, which means more people actually have retirement assets available if a financial shock occurs,” he said.
Why 401(k) hardship withdrawals have tripled since 2020
The tripling of the hardship withdrawal rate from roughly 2% before the pandemic to 6% in 2025 reflects a combination of economic pressure and regulatory change working in the same direction.
On the economic side, the picture is specific. Layoffs surged to their highest level since the pandemic in 2025. Credit card delinquencies hit a 13-year high.
Excluding health care, nonfarm payroll employment fell throughout most of the year. For a significant portion of the workforce, the strong headline economy and the lived experience of monthly expenses have not been the same thing, according to Investopedia.
On the regulatory side, two pieces of legislation accelerated the trend. Congress’s 2018 reform eliminated the requirement to take a loan before a hardship withdrawal. The SECURE 2.0 Act, passed in 2022, went further by allowing penalty-free emergency distributions of up to $1,000 once every three years.
