US 401k Retirement Account Hardship Withdrawals Reach Historic High

Although the AI boom and data center construction wave have driven U.S. stocks higher, beneath the surface of prosperity, the number of difficult withdrawals from 401(k) plans has reached a record high.

According to Vanguard’s “How Americans Save in 2025” report, the proportion of 401(k) withdrawals due to hardship rose to a record 6% in 2025, up from 4.8% in 2024, and approximately 2% before the pandemic.

This increase marks the sixth consecutive year of growth in hardship withdrawals since Congress relaxed related regulations in 2018. At that time, the policy eliminated the requirement for participants to first apply for a 401(k) loan before making a withdrawal. Vanguard states that the median amount of hardship withdrawals is about $1,900, mainly used for:

• Avoiding foreclosure or eviction (36%)
• Paying medical expenses (31%)
• Paying tuition (13%)

The report notes: “Given that it is now easier to apply for hardship withdrawals, and automatic enrollment mechanisms have led more employees, especially low-income groups, to start saving for retirement, a slight increase in hardship withdrawals is not surprising.”

The report also points out: “For a small portion of employees under financial pressure, hardship withdrawals may serve as a safety net, providing a buffer that they might not have access to without automatic mechanisms in pension plans.”

The data shows that amid the ongoing cost of living crisis, the K-shaped recovery of the U.S. economy continues with no signs of ending. The most financially vulnerable groups are forced to tap into their 401(k) and retirement accounts to maintain basic living standards.

Industry insiders note that withdrawing money from a 401(k) has become one of the easiest ways to access extra funds. Nearly half of Americans cannot come up with $1,000 for unexpected expenses—lacking emergency savings or available credit, they have nothing.

Earlier this week, Muddy Waters founder Carson Block predicted that under the impact of AI, 15% of knowledge workers in the U.S. will lose their jobs within the next three years. The core concern is that as unemployment rises and reduces inflows into retirement accounts like 401(k)s, and even forces unemployed workers to dip into their savings early, the stock market will face ongoing capital outflows, leaving no one to catch the falling knife.