Summary

Vanguard data shows 6% of 401k plans had hardship withdrawals in 2025. Here's the real cost no one is calculating and one move to protect yourself.

Vanguard Group reported that 6% of the 401(k) plans it administers recorded a hardship withdrawal in 2025. That’s up from 4.8% the year before. Vanguard manages retirement accounts for millions of American workers, so that percentage shift represents hundreds of thousands of people making a decision they can’t undo.

The two leading reasons workers gave: avoiding eviction and covering medical bills. Not lifestyle spending. People choosing between keeping a roof over their heads and leaving their retirement account untouched.

The Number That Tells the Real Story

Every outlet is framing this as a political debate. That’s the wrong frame. The number that actually matters to your future isn’t 6%. It’s what 6% costs.

A hardship withdrawal isn’t just a withdrawal. The IRS treats it as ordinary income and adds a 10% early withdrawal penalty for anyone under 59½. Pull $10,000 out of your account today and you’ll likely net somewhere between $6,500 and $7,200 after taxes and penalties, depending on your bracket. That feels like a solution. Here’s what it actually costs: at a 7% average annual return, $10,000 left untouched for 20 years grows to roughly $38,700. You didn’t lose $10,000. You forfeited nearly four times that amount.

There’s a second layer most coverage is skipping. Ann Larson, co-founder of Debt Collective, noted publicly that nearly half of older Americans have zero retirement savings at all. For those people, this data doesn’t apply because there’s nothing left to pull. The workers showing up in Vanguard’s hardship numbers are, in a painful irony, the ones who had been doing things right.

Before You Touch That Balance, Try This First

Log into your 401(k) plan portal and look up the loan policy before you make any decisions.

A 401(k) loan lets you borrow against your own balance, typically up to 50% of your vested amount or $50,000, whichever is lower. You repay it with interest paid back to yourself, not to a bank. There’s no tax hit on the way out. No early withdrawal penalty. Your money stays invested while you pay it back. It’s not without risk: if you leave your job, the remaining balance often becomes due immediately. But for a short-term cash crunch, it protects far more of your future than a permanent withdrawal does.

That’s a five-minute search inside your plan portal. Worth every second of it.

The pressure on American households is real and it isn’t going away soon. What you do with your retirement account in a crisis shapes your financial life for decades. Most people find out the true cost of a hardship withdrawal months later, on a tax form they didn’t expect. Don’t be one of them.