What Rising Hardship Withdrawals Can—and Cannot

What Rising Hardship Withdrawals Can—and Cannot—Tell Us

Published: February 2026 | American Default Research

By Ross Kilburn, Founder, American Default Research

Vanguard-recordkept plans show a rising share of participants taking hardship withdrawals. The series documents plan use, not a universal household sequence or a proven lead on delinquency.

Vanguard reports that 6% of participants with a hardship-withdrawal option used it in 2025, compared with 2.3% in 2019. This is a plan-participant use rate, not evidence that every participant exhausted cash savings or will later become delinquent. Hardship distributions are generally subject to income tax; an additional 10% tax may also apply to some early distributions unless an exception applies. Sources: Vanguard How America Saves 2026; IRS hardship-distribution guidance.

The Number

Vanguard’s annual How America Saves report tells the story: 6% of 401(k) participants took a hardship withdrawal in 2025. In 2019, it was 2.3%.

That’s 2.6× the 2019 rate over 6 years in this annual series. The increase is real within the reported plan population; its meaning needs the same care as the number.

What Hardship Withdrawals Actually Mean

A hardship withdrawal is a distribution from a workplace retirement plan made under the plan’s hardship rules. It generally reduces the account permanently and is generally taxable. For a participant under age 59½, a 10% additional tax may apply unless an IRS exception applies. Plan terms and tax treatment matter; “hardship” does not make every distribution penalty-free.

IRS rules describe an “immediate and heavy financial need,” and plan terms determine whether hardship distributions are available. Safe-harbor examples include certain medical, housing, tuition, funeral, and casualty-related expenses. Those categories describe permitted uses; this aggregate series does not report each participant’s reason.

At the latest rate, the arithmetic is about 1 in 17 participants in the reported population. A withdrawal can reduce future retirement assets, but the rate does not show that every participant faced “immediate survival,” exhausted every other buffer, or lacked liquid savings. The full trajectory and its population limits are tracked in Hardship Withdrawal Statistics.

Why This Matters for the ADI

The ADI tracks the Safety Net & Buffer domain (20.0% weight) alongside delinquency, default/legal, debt-burden, and labor measures. The personal saving rate (PSAVERT) is an economy-wide flow. Vanguard’s hardship-withdrawal rate describes participants in recordkept workplace plans. The two measures have different populations and units and do not locate a universal point in a household distress sequence.

The personal saving rate is currently 2.7%. The debt service ratio is another aggregate measure. Reading these series together can provide context, but it cannot establish that the same people first used liquid savings and then withdrew retirement assets.

Keep the SECURE 2.0 Distribution Separate

SECURE 2.0 created a separate exception of up to $1,000 for certain emergency personal expense distributions, effective in 2024. That statutory category is not automatically the same as a plan hardship withdrawal. The Vanguard hardship series rose from 3.6% in 2023 to 4.8% in 2024, but this series alone does not attribute that change to SECURE 2.0.

Neither the annual hardship rate nor the statutory change reports the counterfactual: what those participants would have done under different rules or with different savings. The source also does not establish that “millions” used the new emergency-expense exception, so this article does not infer that claim from the percentage.

The Historical Pattern

Hardship withdrawals record money taken from workplace retirement plans under plan hardship rules. The aggregate rate does not establish that every participant’s financial cushion was gone, and it does not predict that the same people will later become delinquent or file bankruptcy.

What to Watch

Vanguard’s next annual report can show whether the rate in its recordkept-plan population plateaued or continued rising. Comparisons with the personal saving rate should preserve the difference between a national flow and a participant event; co-movement would not prove that one led or caused the other.

For the full hardship withdrawal time series and savings data, see our Hardship Withdrawal Statistics and Savings Rate Statistics roundups.

ADI 43.8 2026-Q1 · Band 3 of 5 - On average, its inputs sit higher than in 44% of their own quarterly histories

Tracked Rank 9 / 13 refresh history

Refresh Delta +0.01 2026-08-13

Changes compare the latest published snapshot with the prior published snapshot and may include source revisions.
Recently changed indicator	Source	Period	Snapshot change
Delinquency Rate on Single-Family Residential Mortgages, All Commercial Banks	Board of Governors via FRED	2026-Q2	-0.03 percentage points
The Pipeline	ATTOM Data Solutions	2026-06	+0.74
Foreclosure Filings	ATTOM Data Solutions	2026-Q2	-17 percentage points
SNAP (Food Stamp) Enrollment	USDA Food and Nutrition Service	2026-05	-448968
Initial Unemployment Claims (SA)	DOL via FRED	2026-08-15	-3000

Ross Kilburn has spent over two decades working directly with financially distressed American households — from negotiating more than 1,000 short sales during the Great Recession to generating leads for a foreclosure defense law firm today. He is the author of The Complete Guide to Short Sales and the founder of American Default Research. Full bio →

Frequently Asked Questions

Why are 401(k) hardship withdrawals called cannibalization?

American Default uses “cannibalization” as an editorial label for taking money from a workplace retirement account. Vanguard's source measure is the hardship-withdrawal rate among participants with the option. Hardship distributions generally reduce the account and are generally subject to income tax; an additional 10% tax may apply to some early distributions unless an exception applies. The label does not establish that every participant exhausted other resources.

How much have hardship withdrawals increased?

Vanguard reports an increase from 2.3% in 2019 to 6% in 2025 among participants with a hardship-withdrawal option. This compares annual observations in the same series; it is not a rate for all workers or U.S. households.

What does the cannibalization rate tell us that the savings rate doesn't?

The personal saving rate is an economy-wide flow measured as a share of disposable personal income. Vanguard's hardship-withdrawal rate is the share of participants with the option who used it. The measures have different units and populations; neither shows that the same people moved from zero or negative saving into retirement withdrawals, or that one measure marks a deeper stage of distress.

Did the SECURE 2.0 Act contribute to the increase?

Vanguard's aggregate series does not identify why the rate changed, so it cannot establish that SECURE 2.0 caused any increase. The IRS attributes removal of the prior plan-loan requirement to Bipartisan Budget Act of 2018 changes effective for hardship distributions in 2019, not to SECURE 2.0.

Where does the hardship withdrawal data come from?

Vanguard's How America Saves 2026 report provides the annual series. The rate is the share of participants with a hardship-withdrawal option in Vanguard-recordkept plans who used it during the year; it is not a national estimate for all adults, workers, or retirement accounts.