Why More Americans Are Raiding Their Retirement Savings for Emergencies
New research from Vanguard and FINRA highlights growing financial vulnerability among U.S. households, with hardship withdrawals and 401(k) cash-outs hitting record highs.
Americans are dipping into their retirement accounts at unprecedented levels, a sign that many households are struggling to cover immediate financial needs. New data from Vanguard Group and the FINRA Investor Education Foundation reveal rising hardship withdrawals, cash-outs, and shrinking emergency savings.
According to Vanguard’s latest analysis, 4.8% of workers tapped their 401(k) for a hardship distribution last year—more than double the pre-pandemic average of around 2%. Nearly one-third of workers leaving their jobs chose to cash out their accounts entirely, often facing taxes and penalties in the process. That means the $12.2 trillion sitting in 401(k)s is increasingly serving as both a retirement nest egg and an emergency lifeline.
At the same time, fewer Americans are building traditional rainy-day funds. FINRA’s 2025 survey shows that just 46% of U.S. adults have at least three months of expenses saved, down six percentage points from 2021. Predictably, savings vary widely by income, age, and education, with wealthier households three times more likely to have emergency reserves than lower-income families.
“After more than a decade of improvements, we’re seeing many households—particularly in middle-income brackets—struggling financially despite stable incomes,” said FINRA Foundation President Gerri Walsh.
Recent legislation has also made retirement savings easier to access in times of need. Expanded hardship withdrawal rules now cover medical expenses, home purchases, terminal illness, domestic abuse, and natural disasters. A new provision allows penalty-free withdrawals of up to $1,000 once every three years, with options to replenish and re-access funds. Employers may also automatically enroll qualifying workers into Roth 401(k)-linked emergency savings accounts, allowing up to $2,500 to be set aside tax- and penalty-free.
Still, the burden falls hardest on hourly workers. Vanguard’s long-term study of three million participants found that hourly employees earning $50,000 to $75,000 were significantly more likely to cash out their retirement savings after leaving a job than their salaried peers (42% vs. 28%). With income swings of about 15% month to month, many hourly workers struggle to handle unexpected expenses without relying on debt—or retirement funds.
FINRA’s data reinforces the picture: 25% of U.S. adults reported experiencing an unexpected income drop in 2024, while more than one-third described their income as inconsistent from month to month.
“Income volatility is proving a threat to retirement security. It’s a hard thing for people to manage,” said Fiona Greig, global head of investor research and policy at Vanguard.
Timothy Flacke, CEO of Commonwealth, a nonprofit focused on financial security for low-income workers, summed it up simply in an interview with The Wall Street Journal: “For many workers, getting through today or this month is the more immediate concern.”