Across the country, workers are cracking into retirement accounts to cover rent, medical bills and other emergencies, even as their 401(k) balances sit at all-time highs. The result is a strange split: on paper, retirement savings look stronger, yet for a growing slice of Americans, a 401(k) has turned from long-term nest egg into a fragile backup plan.
An early look at this year’s activity shows how quickly the trend is accelerating. Roughly 6% of participants in Vanguard-administered plans took hardship distributions in 2025, up from about 4.8% in 2024, according to Axios. At the same time, a Q4 2025 review by Fidelity found average 401(k) balances climbed to about $146,400, helped by a market rally and steady contribution rates. Taken together, the data point to a K-shaped reality in which some savers move ahead while others tap their accounts just to stay afloat.
“People are using retirement as a stopgap,” University of San Diego finance professor Dan Roccato told Fox 7 Austin, warning that short-term cash fixes can turn into permanently smaller nest eggs. Roccato urged workers to look first at options like plan loans, employer assistance or community resources before taking a hardship distribution. His caution lines up with what advisers around the country are saying about the tax hit and long-term retirement risks that come with pulling money out early.
Policy Tweaks Make 401(k) Cash Easier To Grab
Recent changes in plan rules and the 2022 SECURE 2.0 law have stripped away some paperwork and opened the door to limited penalty-free emergency access, which means stressed workers can get to their money faster. An analysis by Vanguard on optional SECURE 2.0 provisions highlights features such as self-certification for hardship withdrawals and small emergency withdrawals. Those tools are available but only unevenly adopted by plan sponsors. Vanguard notes that while easier access can be a lifeline in a genuine crisis, it also lowers the barrier for dipping into retirement assets in less dire moments.
Who Is Using Hardship Withdrawals and Why
Industry reporting shows the median hardship withdrawal hovering around $1,900, a relatively small sum that still represents a serious dent when pulled from retirement savings. Preventing eviction or foreclosure and paying medical bills rank among the most common reasons workers turn to their accounts, according to a summary by Yahoo Finance. Separate plan-level surveys and administrator data indicate that both outstanding loans and outright withdrawals rose in 2025, a pattern documented by industry groups including the PSCA.
Alternatives And How Employers Are Responding
Financial professionals say that before raiding a 401(k), workers should run through every other option: a plan loan that can be repaid, any hardship-repayment features in the plan, short-term community aid, or an employer-sponsored emergency-savings benefit. Employers, for their part, are increasingly rolling out emergency-savings and financial-wellness programs in an effort to cut down on withdrawals, according to a workplace benefits release from Fidelity. The firm also urges workers to talk with plan administrators about tax implications and repayment rules before taking any money out.
Experts say that for households under pressure, the priority is to line up all available choices and pick the least damaging one. In many cases, a plan loan that is repaid on schedule will leave a worker better off than an irreversible hardship distribution. Public data from Vanguard, Fidelity and plan-sponsor surveys make one thing clear: record-high balances can exist alongside record use of hardship withdrawals, and the real price tag will show up years from now in Americans’ retirement security.
