American workers are saving more for retirement than ever before, although a growing number are also tapping into those savings to cope with financial hardship, according to a new report from Vanguard.
In its annual “How America Saves” report released Tuesday, the asset management giant analyzed the retirement behavior of nearly 5 million workers participating in roughly 1,300 employer-sponsored retirement plans over the past year. The findings suggest that retirement savers are generally in their strongest position on record, even as signs of financial strain persist for some households.
According to the report, average retirement account balances rose nearly $20,000 over the previous year to a record $167,970. Median balances—which are often seen as a better measure because they are less affected by a small number of very big accounts—also reached a record high, climbing nearly $6,000 to $44,115, an increase of 16 percent from 2024.
Participation and contribution rates were also at all-time highs in 2025. Vanguard said 86 percent of eligible employees contributed to their workplace retirement plans in 2025, up 5 percentage points from 2016 and the highest participation rate recorded in its annual survey’s history.
Workers saved an average of 7.6 percent of their pay through employer-sponsored retirement plans, and nearly half of participants increased their contribution rate during the year.
When employer contributions are included, the combined savings rate reached 12.1 percent, up from 11.6 percent four years earlier. One-quarter of participants contributed more than 10 percent of their salaries annually.
At the same time, however, hardship withdrawals continued to climb.
Vanguard found that 6 percent of participants made hardship withdrawals in 2025, the highest level on record and up from 5 percent the previous year. Most of those withdrawals were made by lower-income workers, who withdrew an average of $1,900.
Avoiding foreclosure or eviction remained the most common reason for making a hardship withdrawal, accounting for 36 percent of withdrawals in 2025. Medical expenses ranked second, with nearly three in 10 hardship withdrawals attributed to healthcare costs. Vanguard said the distribution of hardship withdrawal reasons has remained relatively stable over the past three years.
“While more recent macroeconomic pressures such as inflation and rising interest rates may contribute to increased financial strain among households, trends in retirement plan designs and services are also influencing participant behavior,” Vanguard said.
The company also noted that recent changes to retirement-plan rules have made it easier for workers to dip into retirement funds during emergencies.
Under the Secure 2.0 Act, enacted in 2022, 401(k) plans may allow participants to self-certify hardship withdrawals. Instead of having to provide documentation upfront, participants can submit a statement affirming that they experienced a qualifying hardship, that the withdrawal amount does not exceed their financial need, and that they lack other available resources.
According to Vanguard, 3 percent of plans adopted the self-certification provision in 2025. The most common hardship withdrawal process, used by 87 percent of plans, was a summary-review approach that does not require documentation upfront but requires participants to maintain records in case verification is later requested.
Withdrawal rates varied significantly depending on the level of documentation required, according to the report. When plans required participants to provide documentation before receiving funds, only 2.5 percent of participants made hardship withdrawals. By contrast, plans that allowed self-certification saw an 8.5 percent withdrawal rate. The summary-review process produced a withdrawal rate of 6.4 percent.
Hardship withdrawal usage also differed sharply across industries. Workers in transportation and warehousing (9 percent) recorded the highest rates of hardship withdrawals, while employees in the legal services sector (1 percent) were among the least likely to tap their retirement savings.
At current levels, one or two hardship withdrawals over a 30- or 40-year career are unlikely to significantly affect retirement readiness. However, Vanguard noted that nearly half of participants who took hardship withdrawals made multiple withdrawals, effectively using their retirement accounts as emergency savings funds.
“Frequent hardship withdrawals can, over time, undermine retirement savings,” Vanguard warned.
