Retirement Hardship Withdrawals Spike

The percentage of workers taking a hardship withdrawal from their 401(k) plans hit 6% in 2025, a significant jump from 4.8% in 2024 and more than double the pre-pandemic average of roughly 2%. This marks the sixth consecutive annual increase in hardship withdrawals, a trend that began after Congress eased withdrawal rules in 2018. The primary drivers for these withdrawals are not frivolous expenses but indicators of financial distress. The top reasons cited include covering personal debt (24%), managing recurring bills (21%), dealing with unexpected major expenses (19%), and paying for medical costs (18%). The median amount withdrawn due to hardship was $1,900. These withdrawals come at a significant long-term cost, permanently reducing retirement savings by forfeiting decades of potential compound growth. The withdrawn funds are also subject to ordinary income tax, and potentially a 10% penalty if the individual is under age 59½. Unlike a 401(k) loan, this money cannot be repaid into the account. The "K-shaped" divergence is stark: higher-income households are benefiting from rising asset values in homes and stocks, while lower-income groups are increasingly falling behind. This economic split is reflected in business performance, with companies serving wealthier customers thriving while those in lower-income areas see slower demand. Underlying this financial strain is a sharp rise in credit card debt, with national balances exceeding $1 trillion. In the fourth quarter of 2025, the percentage of credit card debt that was 90 or more days delinquent reached 12.7%, its highest point since the first quarter of 2011.