Adia Rad never imagined she would be the person to take money out of a 401(k) before retirement. Then 2025 came, and unexpected bills and rising costs started to hit her pockets. So she decided to tap into her retirement savings, not just once but four times, that year.
As a single mother, Ms. Rad said, she found that it had become harder to keep up with essentials like gas, groceries and child care. Before making the withdrawals, she had about $10,000 saved. She used the money to cover expenses such as $2,000 for car registration fees and overdue tolls; $1,500 for dental surgery for her 10-year-old dachshund, Dewey; and other unexpected emergencies.
At the time, the 10 percent early-withdrawal penalty plus taxes felt like a reasonable trade-off to Ms. Rad, 32, as she wouldn’t have to pay those until the next year. The account was tied to a former job, and she preferred having cash on hand rather than falling into debt.
Now, however, with $1,200 in penalties due with her tax return this year, her biggest regret isn’t tapping into her retirement savings — it’s withdrawing from the account last year instead of this year, when her expenses grew even more.
“I wish I would have waited to take it out now,” said Ms. Rad, a construction administrator who lives in Norfolk, Va., where she said gas prices were up to nearly $4 a gallon and her electric bill was around $300 to $400 a month. “Things are getting worse, and I feel like I didn’t expect it to get worse than what it already was.”
More Americans like Ms. Rad are turning to hardship withdrawals from their 401(k) accounts to cover unexpected expenses or emergency costs, according to a report from Vanguard, which administers retirement plans for nearly five million people. Other firms, like Fidelity and Charles Schwab, also reported increases.
Six percent of Vanguard plan participants made hardship withdrawals in 2025, up from 4.8 percent in 2024 and 3.6 percent in 2023, and roughly triple the share seen before the pandemic. The median withdrawal amount was $1,900 in 2025, Vanguard’s report said.
The increase comes as many households wrestle with higher borrowing costs and the rising prices of groceries and housing, which have created uncertainty despite the cease-fire in the war with Iran. Many people have less room in their budgets to save and fewer options in a financial emergency.
And, because of affordability concerns, more than half of Americans withdrew or said they planned to make early withdrawals from their retirement accounts in 2025 and 2026, according to new data from Intuit Credit Karma. Financial experts said they expected rates of withdrawals to continue to increase, even significantly, if the economy weakened further.
But, the Vanguard report said, in context, the uptick may not be as alarming as it appears. More people are enrolling in 401(k) plans, thanks to auto-enrollment by employers, and changes made by the Internal Revenue Service that took effect in 2019 eased the rules around hardship distributions, which may have contributed to the increase.
The I.R.S. allows these withdrawals only for specific financial needs, such as medical bills or payments to prevent eviction or foreclosure. Yet in most cases, the amount withdrawn is subject to income taxes and a 10 percent penalty if the account holder is younger than 59½.
The rise in hardship withdrawals dates to around 2018, when Congress made it easier for workers to gain access to their funds before they retired. Under the Bipartisan Budget Act of 2018, participants are no longer required to take a loan from their 401(k) before becoming eligible for a hardship distribution. Employers can still impose that requirement, but it is not mandatory anymore.
More recently, the SECURE 2.0 Act, which took effect in 2024, allows workers to withdraw up to $1,000 per year for certain emergency expenses without facing the early withdrawal penalty. If the funds are repaid within three years, the distribution may also avoid being taxed, as long as it qualifies as a personal or family emergency.
The most common reasons people tap into their accounts are to avoid home foreclosure, cover medical bills or pay for buying or fixing a primary home, said David Blanchett, head of retirement research at Prudential Financial. College tuition is another reason, he added, but that expense tends to come up more among higher earners, who are also less likely to take hardship withdrawals overall.
Saving for the Future or Building a Safety Net?
Renee Penilla, 31, first withdrew from her 401(k) in 2023 after being laid off from her job of seven years and struggling for six months to find work.
Ms. Penilla’s life in Rancho Cucamonga, Calif., where she was paying nearly $2,000 in rent and dealing with rising child care costs for her now 8-year-old daughter, became overwhelming. She didn’t want to move back in with family because she wanted her child to stay in a good school. As bills and debt kept growing, she decided to withdraw some of her retirement savings.
Three years later, Ms. Penilla said, she regrets that decision. Her new job pays less, and now mostly all of her income goes toward bills, which are significantly higher. Her rent is now $2,620 a month, including utilities, leaving little room to save. She did receive a raise this year, bringing her salary to $90,000, but it hasn’t eased the pressure much, she said.
So, in January, Ms. Penilla took out $1,400, or about half of her remaining 401(k) balance, to help pay off some of her credit card debt, which was rising because of high interest. She said she wished she had left the money alone, as she’s now trying to rebuild her retirement fund while paying off her debts.
“I do regret both times I have withdrawn from my 401(k), the first time more than this time,” said Ms. Penilla, a client services analyst. “But I feel like I am really jeopardizing my future for a short-term safety net.”
The rise in withdrawals also points to a larger issue: Many Americans are falling behind on retirement savings. A report from the National Institute on Retirement Security published in February found that the typical working-age adult had saved an average of just $955. One reason is that nearly half of U.S. workers don’t participate in a retirement plan through their employer, a rate that has been the status quo for decades, according a study by the Center for Retirement Research at Boston College. Withdrawal rates are also higher among people who are divorced, separated or widowed, the institute noted.
An AARP report found that, late last year, about 7 percent of retirees said they were returning to work, often because they needed the extra income.
“Once someone starts relying on bonuses or portfolio withdrawals to fund their regular lifestyle, it becomes very hard to sustain that same standard of living in retirement,” said Chandler Riggs, a vice president and financial consultant at Fidelity Investments.
Kailyn Rhone is a Times business reporter and the 2025 David Carr fellow.
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