401(k) Retirement Crisis: Record Number Of Americans Raid Savings To Pay Medical Bills

A record share of American workers are raiding their retirement pots to survive a mounting cost-of-living crisis, despite surging stock market balances.

Vanguard Group's 'How America Saves 2026' report reveals that 6% of 401(k) participants took a hardship withdrawal in 2025, the highest level ever recorded. This figure has tripled from the 2% seen before the pandemic, marking the sixth consecutive year of rising 'leakage' from US retirement plans.

While average balances hit a record $167,970 last year, a growing subset of households is being pushed to the brink by high medical bills, the threat of eviction, and fuel prices forecast to exceed $4 per gallon.

Vanguard believes many US workers are faring well, as more have been contributing higher amounts to 401(k) accounts, while balances have jumped to record highs alongside the stock market. However, there is an uptick in the number of workers facing financial challenges.

What Kind of Financial Emergencies?

Americans are withdrawing an average of $1,900 from their 401(k)s for various reasons, including the risk of foreclosure, eviction, and high medical bills.

Many are also neck-deep in debt. Americans are struggling with some types of mortgages and rising credit card debt amid rising unemployment and the risk of higher inflation, which could threaten consumer spending and, in turn, the US economy in the near term.

The rise in hardship withdrawals marks the 6th consecutive year of increases since 2018, when Congress made it simpler to tap into 401(k) accounts. In recent years, Congress has also expanded the list of eligible reasons to take a withdrawal. Even 401(k) holders who are victims of domestic abuse and federally declared disasters can take hardship withdrawals, penalty-free, up to $1,000 for an emergency once every three years. However, if account holders replace the amount they withdrew, they can tap into their account again next year.

Automatic enrolment is another reason for the current uptrend in 401(k) withdrawals, as it moved more workers into retirement savings instruments, giving more people savings to draw on. Among the nearly 1,300 employer plans using Vanguard's 401(k) administration services, 61% automatically enrolled new hires in 2025, which is up from 34% in 2013. Note that those who take hardship withdrawals from traditional accounts have to pay income tax as well as a 10% penalty on the withdrawal amount if they are younger than 59½ years old.

45% Increased 401(k) Savings in 2025

Vanguard data also showed that the average 401(k) balance rose by 13% in 2025 to an all-time high of $167,970, driven by a year-long stock market rally. Furthermore, 45% of holders also boosted their savings rate last year.

Elsewhere, around 33% of plans with automatic enrollment in 2025 had workers starting with a savings rate of 6% or higher, up from 11% in 2013. 'People are saving more, remaining invested, and being automatically rebalanced in a professional way,' said David Stinnett, head of strategic retirement consulting at Vanguard.

The success of the US retirement model will depend on whether households can build separate emergency savings to protect their retirement pots from being drained before they reach the finish line.

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