That’s up from 4.8% in 2024 and more than double pre-pandemic levels. It also marks the sixth straight year of increases. A hardship withdrawal lets workers access money from their 401(k) early for an immediate financial need, like avoiding foreclosure.

At the same time, the World Economic Forum found that retirement account balances have been rising, driven by strong markets and steady contributions (2).

That contradiction tells a deeper story: Even as portfolios grow on paper, some Americans are under enough pressure to tap their savings early.

This shift accelerated after Congress made it easier to access 401(k) funds by removing the requirement to take out a loan first. Ultimately, this makes it easier to access a resource that’s meant to safeguard your golden years when coupled with Social Security.

And as recession fears build, protecting what’s left in those accounts is becoming more urgent.

Why are people withdrawing from their 401(k)s?

Financial pressure is building from multiple directions.

According to Jeff Clark, head of defined contribution research at Vanguard, many Americans — particularly younger and lower-income workers — are juggling rising costs while living paycheck to paycheck (3).

Vanguard data shows the median 401(k) withdrawal amount was $1,900 in 2025 (4). Doing this once or twice isn’t necessarily a problem on its own. However, Vanguard found that Americans were dipping into their retirement savings several times — effectively using their 401(k)s as an emergency fund.

The report lists four chief reasons for early 401(k) withdrawal:

• To avoid a foreclosure/eviction
• To cover medical expenses
• To purchase a home
• To make repairs to a home

Clark also added that student loan debt and soaring credit card debt are key reasons for early withdrawals, with credit card debt accruing double-digit interest rates. TransUnion reports that the average credit card balance held per consumer has increased to $6,715 this year, up from $6,555 (5).

As everyday costs rise, so does the need for quick cash. And for many, retirement savings have become one of the few accessible sources of income.

Is it bad to take early retirement payments?

Early retirement withdrawals come at a cost.

In many cases, the U.S. government imposes a 10% IRS penalty on any withdrawal before age 59.5 (6). That’s in addition to regular income taxes.

There are exceptions for hardship situations, such as medical expenses, avoiding eviction or covering funeral costs (7).

However, even when penalties are waived, the long-term impact can be significant.

Money pulled out early loses its ability to compound, which can dramatically reduce the value of a retirement portfolio over time.

For example, pulling just $1,900 out of your 401(k) today — the median hardship withdrawal — will cost you far more in the long run. If that money had stayed invested and earned an average annual return of 7%, it could have grown to roughly $14,000 over 30 years.

That means even relatively small withdrawals today translate to five-figure losses by the time you retire.

How to protect your retirement from recession

If more Americans are turning to their retirement savings just to stay afloat, protecting what’s left becomes much more important.

But that doesn’t mean timing the market or making drastic changes. In most cases, it just comes down to having a plan and sticking to it.

Have a strategy — and someone in your corner

When markets feel uncertain, a clear plan can make all the difference.

If you want to ensure you’re maximizing your retirement contributions and staying on track, it could pay to speak with a qualified financial advisor.

Research from Vanguard shows that working with a financial advisor can add about 3% in net returns over time (8). That difference can become substantial — for example, a $50,000 portfolio could grow by more than $1.3 million over 30 years with professional guidance, depending on market conditions and strategy.

That’s where Advisor.com comes in. The platform connects you with licensed financial professionals in your area who can provide personalized guidance based on your goals.

A professional advisor can also help you determine how many years you have left to invest before retirement and assess your comfort level with market fluctuations — two key factors in building the right asset mix.

Through Advisor.com, you can schedule a free, no-obligation consultation to map out your long-term financial plan.

Stick to your plan through tough times

It can be tempting to withdraw money. Market volatility, with negative hits to your portfolio, and headlines dominated by recession fears, make pulling money out seem like a logical choice.

But history suggests that reacting emotionally to short-term swings can do more harm than good.

“Far more money has been lost by investors in preparing for corrections or anticipating corrections than has been lost in the corrections themselves,” legendary investor Peter Lynch famously wrote in a September 1995 piece, Fear of Crashing, in Worth magazine (9).

When you have your money invested, the negative or positive valuations you see on your portfolio don’t yet translate into real losses or gains. No matter how far down a stock dips, you haven’t actually lost anything until you sell your shares.

Selling your shares locks in the loss you see in the market. If you hold off, though, a negative stock can always rally.

Markets have historically recovered over time, but only for those who stay in them.

Build an emergency buffer in a high-yield savings account

One reason more Americans are tapping their 401(k)s is simple: They don’t have enough cash on hand to cover unexpected expenses.

That’s where an emergency fund comes in.

Having liquid savings set aside for things like medical bills, car repairs, or job loss can help you avoid dipping into long-term investments. It can also protect your retirement from penalties, taxes and lost growth.

But where you keep that money matters.

A high-yield account like a Wealthfront Cash Account can be a great place to grow your emergency funds, offering both competitive interest rates and easy access to your cash when you need it.