A new report from Vanguard is turning heads: a record 6% of workers with retirement plans requested hardship withdrawals in 2025 — up from 4.8% in 2024, and nearly triple the pre-pandemic average of about 2%. Axios
That’s a significant shift, and one worth paying attention to if you’re a small business owner with employees enrolled in a retirement plan.
What Is a Hardship Withdrawal?
A hardship withdrawal allows an employee to pull money from their 401(k) early to cover an urgent financial need. Common reasons include preventing foreclosure or eviction and covering medical bills. BorderReport Unlike a loan, the money doesn’t get paid back — and most financial experts advise against it, since workers forfeit the power of compound interest on whatever they withdraw. CNBC
Why Are Numbers Rising?
It’s not a single cause. Recent changes Congress enacted — including the SECURE 2.0 Act passed in 2022 — made it easier to tap retirement accounts for hardship reasons, including a penalty-free distribution of up to $1,000 for emergency purposes. Axios At the same time, automatic enrollment has brought more lower-income workers into plans, meaning people now have balances to draw from that they might not have had before. Fox Business
But there’s also a real financial stress component. Medical expenses were among the leading reasons participants made hardship withdrawals, with the median withdrawal size coming in at $1,900. Fox Business
The Bigger Picture
Here’s what makes this trend unusual: average 401(k) balances actually climbed to $146,400 in the fourth quarter of 2025, up 11% from a year earlier NewsNation — meaning workers are pulling from accounts that are, on paper, doing well. It paints a picture of a divided economy where portfolio growth and day-to-day financial pressure are happening at the same time.
What This Means for You
For small business owners, this data is a useful reminder that your employees’ financial wellness directly affects your workplace. Financially stressed employees are less productive and more likely to leave. Employers can now add linked emergency savings accounts that allow payroll contributions to a side fund — tools designed to keep long-term retirement savings intact by giving workers a safer pressure valve. The New York Report
If you haven’t reviewed your benefits package or retirement plan design recently, now is a good time to start that conversation.
