Record 6% of 401(k) Participants Withdraw $1,900 Average, Potentially Hitting S&P ETF Flows
In 2025, 6% of Vanguard’s 5 million 401(k) participants took hardship withdrawals, up from 4.8% in 2024, averaging $1,900 each. These withdrawals, driven by foreclosure and medical costs, could forfeit about $9,712 in future gains per withdrawal, potentially damping S&P 500 ETF inflows.
1. Rising Hardship Withdrawals
Vanguard data show that in 2025, 6% of the firm’s 5 million 401(k) participants took hardship withdrawals, up from 4.8% in 2024 and triple pre-pandemic levels, driven mainly by foreclosure risks and medical expenses.
2. Average Withdrawal and Future Loss
The average hardship withdrawal was $1,900, which, if invested at 8.5% annually, could have grown to roughly $9,712 over 20 years, underscoring the long-term cost of tapping retirement funds early.
3. Legislative Changes Easing Withdrawals
The Bipartisan Budget Act of 2018 made hardship withdrawals more accessible by removing mandatory loan exhaustion, and Secure 2.0 permits penalty-free withdrawals up to $1,000 for emergencies if repaid within three years.
4. Potential Impact on S&P 500 ETF Flows
Increased withdrawals may reduce retirement account balances, potentially lowering inflows into S&P 500 ETFs as participants draw down funds rather than reinvesting in market-tracking funds.