A recent Vanguard report found that a record 6% of eligible 401(k) participants took hardship withdrawals during 2025, up from 5% the year before and roughly three times the pre-pandemic rate. While the numbers are concerning, they shouldn’t surprise anyone.
People aren’t tapping their retirement accounts because they suddenly forgot the importance of saving for retirement.
They’re doing it because life got expensive.
Medical bills. Housing costs. Inflation. Unexpected emergencies. For many workers, the 401(k) has become the only meaningful savings account they have.
I’ve seen some commentators suggest that employers should tighten hardship withdrawal procedures or make it more difficult to access retirement savings. I think that’s the wrong approach.
Congress has spent the last several years expanding access to retirement plans through legislation like SECURE and SECURE 2.0. Automatic enrollment is bringing millions of new participants into 401(k) plans, many of whom have lower incomes and fewer financial resources. It stands to reason that hardship withdrawals will increase as participation increases.
The real issue isn’t the hardship withdrawal.
The real issue is financial insecurity.
A hardship withdrawal is often the last stop after someone has exhausted other options. If an employee is facing eviction, overwhelming medical expenses, or another immediate financial need, preserving retirement savings becomes secondary to solving today’s crisis.
That doesn’t mean plan sponsors should ignore the trend.
Instead, they should ask better questions.
Do employees have access to emergency savings programs?
Are they receiving financial wellness education?
Do they understand the long-term cost of withdrawing retirement assets?
Has the employer considered the new emergency savings features authorized under SECURE 2.0?
Those conversations will do far more to improve retirement outcomes than simply adding administrative hurdles.
As an ERISA attorney, I spend much of my time helping employers keep retirement plans compliant. But compliance alone doesn’t solve financial stress.
Hardship withdrawals are a symptom, not the disease.
If we want fewer participants raiding their 401(k)s, we shouldn’t start by making hardship withdrawals more difficult.
We should start by helping employees avoid the hardship in the first place.