Hardship withdrawals are on the rise due to the high cost of living, prompting people to dip into their retirement savings. In recent years, hardship withdrawals have more than doubled, from 2% in 2018 to 5% in 2024, the highest level since tracking began. Inflation averaged 4.2% over five years.

With the escalating cost of living, 75% of workers are stressed about finances and lack emergency savings, leading to increased hardship withdrawals and retirement-plan loans. Employees must prove immediate financial need for withdrawals, which are taxed as ordinary income with a 10% penalty for those under 59½.

Retirement-plan loans have also increased, with 19% of workers having outstanding loans in 2025. Loans can be up to 50% of the vested account balance or $50,000, with repayment required. Employees with workplace emergency savings take smaller hardship withdrawals. Financial stress leads to lost productivity and employer losses.

Experts recommend having three to 12 months of emergency savings to alleviate financial stress. Employees with at least three months of emergency savings report higher financial well-being. Emergency savings are crucial for short-term and long-term financial health, with retirement savings being the top financial goal after retirement.

Read more at Yahoo Finance: 401(k) hardship withdrawals more than double as people raid their retirement savings for emergencies