Rise in Hardship Withdrawals Behind Increase in Retirement Plan ‘Leakage’

An increasing number of participants are making hardship withdrawals from their defined contribution plans when they for face unexpected expenses, according to recent data from both Vanguard and PLANSPONSOR.

The recordkeeper found an average of 6% of plan participants are using hardship withdrawals, if offered, from their 401(k) plans, according to Vanguard’s “How America Saves 2026” report, which analyzed 1,400 qualified plans for which Vanguard directly provides recordkeeping services. The 6% figure for 2025 is up from 4.8% in 2024 and 3.6% in 2023, per Vanguard.

Hardship withdrawals include drawdowns from plans participants make when facing financial strains such as eviction, home foreclosure, college education expenses not covered by employers, medical expenses, or the purchase of a new home. 

Avoiding foreclosures, eviction, and medical expenses were the leading reasons reported by 401(k) participants for making hardship withdrawals. The median size of the withdrawal was $1,900, according to Vanguard.

Additionally, according to the 2026 DC Survey: Plan Benchmarking, produced by PLANSPONSOR, 88.6% of plan sponsors offered the in-service distribution option of hardship withdrawals, and an average of 3.8% of plan participants in 2025 made hardship withdrawals within the year, up from 1.8% in 2024.

According to the PLANSPONSOR survey, plans with at least $1 billion in plan assets had the biggest jump in average hardship withdrawals in the last two years. In 2025, 7.7% of those plans’ participants made hardship withdrawals, compared with just 2.2% in 2024.

The SECURE Act 2.0 of 2022 made it easier for employees to make hardship withdrawals by enabling participants to self-certify that they have had a safe harbor event that constitutes a deemed hardship, rather than requiring plan administrators confirm that the need qualifies for treatment as a hardship withdrawal. That provision was effective for plan years starting after the law was enacted. 

Hardship withdrawals are cause for concern, as they point to the growing issue of “leakage” from 401(k) plans, according to BlackRock’s global head of retirement solutions, Nick Nefouse.

“People [in the U.S.] take money out for emergency savings, they take money out on loans, they take money out for all sorts of different reasons,” Nefouse says. “In other markets around the world, you can’t do that.”

In other cases, retirement plan leakage can be caused by caregiving needs, which can drive deficits in plans to between 40% to 90% by the time retirees reach age 65, depending on the caregiving length.

In addition to the deficits, in order to make up these lost contributions, caregivers would need to work between eight and 24 additional years, according to Surya Kolluri, head of the TIAA Institute.

Financial experts say small hardship withdrawals or making only minimal contributions can significantly impact retirement savings.

“Early withdrawals don’t just reduce a balance today—they eliminate decades of compound growth,” said Michael Eisenga, CEO of First American Properties, in a statement.

Eisenga emphasized that plan participants should remain vigilant about how they are treating their retirement plans, so as not to undermine what they were originally created for.

“The 401(k) was never meant to function as an emergency savings account,” Eisenga said in the statement. “But for millions of Americans, it’s become the only accessible source of liquidity when unexpected costs hit.”