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Growing Trend: 17% of U.S. Workers Draw on Retirement Savings in 2023

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  Published in Business and Finance on Thursday, November 20th 2025 at 13:18 GMT by Investopedia

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Why More Workers Are Choosing to Tap Their Retirement Savings This Year

The retirement savings landscape is shifting. A growing number of employees are withdrawing funds from their 401(k)s, IRAs, and other tax‑advantaged accounts to cover immediate expenses—a trend that’s sparking concern among financial planners and industry analysts alike. The article on Investopedia, “Why More Workers Are Choosing to Tap Their Retirement Savings This Year”, offers a comprehensive look at the drivers behind this behavior, the potential long‑term fallout, and practical steps workers can take to protect their future.

1. A Clear Trend in the Numbers

According to a recent Fidelity retirement‑planning survey cited in the article, about 17 % of U.S. workers reported taking a hardship withdrawal or borrowing from their 401(k) in 2023, compared with roughly 10 % in 2022. The trend is even more pronounced in the younger workforce: employees under 45 were twice as likely to tap their accounts as their older counterparts. The article points out that the spike aligns with a period of heightened inflation, surging housing costs, and an uptick in student‑loan balances.

The data also highlight that a significant portion of these withdrawals are penalty‑free—thanks in part to temporary COVID‑19 relief measures that let workers take up to $10,000 from retirement accounts without the 10 % early‑withdrawal penalty. Though many of these relief provisions are expiring at the end of 2024, the article warns that the temptation to withdraw will likely persist as the economy grapples with slow growth and high interest rates.

2. The Root Causes: Cost of Living, Debt, and Uncertainty

a. Inflation and Housing

Inflation has pushed the average monthly cost of living by over 6 % since early 2023. The article links to Investopedia’s “How Inflation Is Impacting Your Retirement” guide, which explains that the rising cost of groceries, utilities, and especially housing can drain a retiree’s nest egg if the account is used for immediate expenses.

b. Student‑Loan Debt

A 2024 Brookings Institution report (referenced in the article) found that 30 % of workers aged 30‑39 still have student‑loan debt. Many of these borrowers are juggling repayment with other obligations, leading some to draw from their retirement accounts as a short‑term solution.

c. Childcare and Healthcare

With childcare costs doubling since the pandemic and rising out‑of‑pocket medical expenses, families are increasingly turning to their retirement funds for the “gap” in their budgets. The article notes that the U.S. Centers for Medicare & Medicaid Services have not expanded Medicare coverage for high‑deductible plans, leaving many seniors with out‑of‑pocket costs that can deplete 401(k)s.

d. Pandemic‑Era Relief Measures

The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed for penalty‑free withdrawals up to $10,000. While the Act’s provisions were initially set to expire in 2021, extensions carried the relief through 2024, leaving a significant portion of the workforce accustomed to the ease of accessing retirement funds. The article stresses that the psychological impact of “easy access” may lead to a longer‑lasting trend, even after the legal framework reverts to pre‑COVID rules.

3. The Mechanics of “Tapping” Retirement Accounts

a. 401(k) Hardship Withdrawals

Investopedia’s “401(k) Hardship Withdrawals” guide explains that employers may permit withdrawals if the employee can demonstrate an immediate financial need. However, such withdrawals are subject to income tax and, if the employee is under 59½, a 10 % penalty unless an exception applies (e.g., disability).

b. 401(k) Loans

The article links to Investopedia’s “401(k) Loans: What They Are and How They Work” for a breakdown of loan terms. While loans can avoid the early‑withdrawal penalty, they do create a “debt” that must be repaid with interest back into the employee’s own account—often with a small margin for error. Missed payments can trigger a distribution, re‑introducing taxes and penalties.

c. IRA Hardship Withdrawals

The article notes that traditional IRA holders can also take hardship withdrawals if they meet the IRS criteria—typically only allowed for essential expenses like medical costs, education, or first‑home purchases. The article links to “Hardship Withdrawals: When They’re Allowed” for deeper rules, stressing that the penalty can be avoided only under specific circumstances.

4. Long‑Term Consequences

The most significant risk highlighted is diminished compound growth. By pulling out a lump sum, workers lose the potential for those dollars to continue accruing investment gains over decades. The article cites a Vanguard study showing that a 15‑year early withdrawal of $20,000 can wipe out more than 30 % of an expected retirement nest egg when using a 7 % annual return assumption.

Additionally, the article warns about the “withdrawal trap.” Workers who use retirement money to pay current expenses often find that the shortfall leaves them with no safety net for future emergencies, pushing them into a cycle of repeated withdrawals and loans.

5. Strategies to Avoid the Pitfall

1. Build an Emergency Fund
   The article advises setting aside three to six months of living expenses in a liquid savings account. This buffer can reduce the need to tap retirement funds for sudden expenses.

2. Reevaluate Debt Repayment Plans
   For those struggling with student or mortgage debt, the article recommends exploring refinancing options, consolidation loans, or aggressive payment schedules that could free up cash without depleting retirement accounts.

3. Take Advantage of Tax‑Advantaged Options
   In 2023, the IRS increased the catch‑up contribution limit for those aged 50+ to $7,000 for IRAs and $9,500 for 401(k)s. The article links to “IRA Contributions: What You Need to Know” for guidance on maximizing these limits instead of withdrawing.

4. Consult a Financial Advisor
   The article emphasizes the value of a fiduciary, particularly for those who face complex decisions between borrowing, loaning, or withdrawing. A professional can help weigh the cost of taxes, penalties, and long‑term growth losses.

5. Consider Alternative Income Streams
   For workers near retirement age, part‑time work, freelancing, or a side hustle can provide supplemental income without dipping into the retirement pot.

6. The Role of Employers

Employers have a key part to play. The article notes that many firms are reevaluating hardship‑withdrawal policies, encouraging employees to use revolving loans instead of one‑time withdrawals. Companies can also enhance financial‑wellness programs, offering counseling and tools to help employees navigate debt, budgeting, and retirement planning.

7. Bottom Line

More workers are tapping their retirement savings this year because of a combination of high living costs, debt pressures, and lingering pandemic‑era tax relief. While the short‑term relief can seem appealing, the long‑term cost to future financial security is significant. By building robust emergency funds, taking advantage of new tax‑contribution limits, and consulting professionals, workers can protect their retirement while meeting current needs.

For a deeper dive into the specific rules governing hardship withdrawals, 401(k) loans, and IRA contributions, the Investopedia article references the following:

• [ 401(k) Loans: What They Are and How They Work ]
• [ Hardship Withdrawals: When They're Allowed ]
• [ IRA Contributions: What You Need to Know ]

By staying informed and strategically planning, employees can avoid the trap of premature retirement withdrawals and secure a more comfortable future.