- Americans are making early withdrawals from retirement accounts at a record pace, according to Vanguard
- Vanguard said 6% of clients took hardship withdrawals in 2025, up from 4.8% in the previous year.
- Despite more early withdrawals, average 401(k) balances rose 13% since 2024, Vanguard said.
Data from Vanguard shows Americans are pulling money out of their retirement accounts early at record rates to help make ends meet.
Last year, 6% of Vanguard's clients took a hardship withdrawal, which allows them to access funds in tax-advantaged retirement accounts, such as a 401(k), before they reach retirement age. That was up from 4.8% in 2024, the asset management giant said.
Taking a hardship withdrawal is not ideal for a few reasons, one of them being that investors are subject to a withdrawal penalty of 10% for taking money out of their account before 59½. On top of that, they are then taxed on any gains. However, perhaps most importantly, they rob themselves of future growth potential on that money, especially if they are still far from retirement age.
Given these negatives, it's generally not a good sign that Americans are withdrawing money from their retirement accounts. It could signal that consumers are increasingly struggling to keep up with expenses and are resorting to extreme measures to do so.
But Vanguard said the increase, taken in context, may not be all that concerning. That's because the number of investors enrolled in 401(k)s is rising. The IRS also loosened its rules on receiving a hardship distribution in 2019, perhaps making them slightly more common.
"Given that it's now easier to request a hardship withdrawal and that automatic enrollment is helping more workers save for retirement, especially lower-income workers, a modest increase isn't surprising," the Vanguard report said.
Plus, despite the negatives, having an account one is able to draw on in times of emergency — even if not ideal — is better than having no cushion at all.
"For a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that may not otherwise have been available without plan-implemented automatic solutions," the report said.
Data from Fidelity also shows an increase in hardship withdrawals among its clients.
Still, account balances since 2024 have gone up on the whole, both firms said. Vanguard reported an average account balance jump of 13% to $167,970. The median balance was $44,115.
During his State of the Union address last week, President Donald Trump talked up rising 401(k) balances.
"The stock market is at 53 all-time record highs since the election. Think of that. One year. Boosting pensions, 401(k)s and retirement accounts with millions and millions of Americans," Trump said. "They're all gaining. Everybody's up, way up."
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