Don’t put your retirement at risk: Limit hardship withdrawals

by | May 8, 2025 | Uncategorized

hardship withdrawals

The number of American workers who are taking hardship withdrawals out of their employer-sponsored retirement plans is on the rise – potentially putting retirement at risk.

According to Vanguard Group, 4.8% of 401(k) participants in 2024 took a hardship withdrawal – up from 3.6% in 2023 – and more than double the pre-pandemic average of 2%.

This trend is alarming, as hardship withdrawals can have a big impact on retirement – mostly because funds can’t be paid back to your 401(k) plan. That means on top of the taxes you pay after a hardship withdrawal; you lose compounding growth (especially if you took the funds out during an economic downturn or slowdown).

Many working Americans likely don’t understand these risks and we get it – financial stress can be tough to navigate, especially for workers in their “sandwich” years, dealing with children in college, aging parents and their own challenges.

However, employers should be helping their workers navigate these circumstances. Here are some things for employers to consider :

  1. Provide financial support and counseling: Each person has their own unique circumstances, but employers can help them understand the impact of taking a hardship withdrawal by being educated on debt restructuring, budgeting interventions or lifestyle changes.
  2. Health savings plan options: Medical expenses are a burden for most American workers and a cause of many hardship withdrawals. Starting and using a Health Savings Account can help, and employers should be encouraging their employees.
  3. Emergency funds: While emergency funds can help alleviate the need for a hardship withdrawal, you have to have one in the first place. Advising your employees to start saving for emergencies – early and often – is critical.

The increase in hardship withdrawals is a sign that employees are struggling – and need solutions to financial challenges. Employers have an obligation to help – and taking action can help build a more robust, productive society.

Do you still have questions about hardship withdrawals?

Follow us on LinkedIn and Facebook!

If you have other questions about retirement plan loans, email us or call 937.308.0758.