A record share of U.S. workers are tapping retirement savings to cover immediate financial needs, even as account balances reach historic highs, according to new data from Vanguard, highlighting a widening divide in household financial stability.
About 6% of participants in Vanguard-administered plans took hardship withdrawals in 2026, up from 4.8% in 2024 and roughly 2% before the pandemic. The increase comes as the average 401(k) balance climbed 13% to $167,970, reflecting strong equity market performance but masking mounting stress among lower- and middle-income households.
The simultaneous rise in balances and withdrawals underscores a structural tension in the U.S. retirement system. While higher-income savers benefit from compounding returns and employer contributions, a growing minority is using tax-advantaged retirement accounts as a short-term liquidity source.
For many households, the withdrawals are driven by necessity rather than discretionary spending. Vanguard data indicates that the primary reasons include avoiding eviction and covering medical expenses, with a median withdrawal of about $1,900.
The trend suggests a shift in how Americans view 401(k) plans, historically treated as long-term savings vehicles. Increasingly, they are being used as emergency reserves amid persistent inflation and elevated living costs.
- Key data points from Vanguard:
- 6% of participants took hardship withdrawals in 2026
- Pre-pandemic average stood at approximately 2%
- Average 401(k) balance reached $167,970
- Median withdrawal amount: $1,900
Policy changes over the past decade have also contributed to the rise in withdrawals. Since 2018, regulatory adjustments have simplified access to hardship distributions, eliminating requirements to take loans first. A 2022 expansion broadened eligible circumstances to include domestic abuse and federally declared disasters, while allowing limited penalty-free emergency withdrawals.
These changes have lowered barriers to accessing retirement funds, making it easier for workers facing short-term crises to tap long-term savings. Financial advisers warn that repeated withdrawals can erode compounding gains and create a cycle of dependency.
At the same time, the widespread adoption of automatic enrollment has expanded participation in employer-sponsored retirement plans. Vanguard reports that 61% of employer plans automatically enrolled workers in 2025, up from 34% in 2013, increasing both savings participation and the pool of accessible funds.
This dynamic has created a divergence within the same system: a majority steadily building wealth, and a smaller but growing segment repeatedly drawing down assets.
David Stinnett, head of strategic retirement consulting at Vanguard, said, "People are saving more, remaining invested, and being automatically rebalanced in a professional way," pointing to overall system strength despite emerging vulnerabilities.
Credit counselors and financial analysts note that financial distress is no longer confined to low-income households. Rising housing costs, healthcare expenses, and debt burdens are increasingly affecting middle-income workers, pushing them toward retirement accounts as a last resort.
