Nearly half of Americans have taken early 401(k) withdrawals (including Tim Walz)

A record number of people – 41%, according to a new FinanceBuzz survey — are taking early withdrawals from their retirement funds, including Vice Presidential candidate Tim Walz, who admitted that he pulled $135,000 from a 401(k) last year to pay for his daughter’s college education.

Given that Americans are withdrawing more than ever, FinanceBuzz conducted a survey of 1,000 adults to figure out the reason for these early withdrawals.

The average amount people withdrew when they took money out of retirement accounts early was $15,000 and the top reasons people take money out early, according to the survey, are:

• 24% personal debt
• 21% recurring bills
• 19% major purchase
• 18% medical expenses
• 18% personal emergency
• 11% home repairs

“The ‘why’ behind early retirement withdrawals varies case-by-case but ultimately comes down to the idea that people don’t have enough cash to cover their living costs,” said Chris Lewis, Associate Director, Digital PR at FinanceBuzz. “This shows up in a variety of ways, like incurring personal debt (the #1 reason people withdraw), being able to cover bills, home maintenance, medical expenses, and more. Though some people certainly make withdrawals for superfluous spending, the data suggests that the vast majority of withdrawals are to cover needs vs. wants.”

While early withdrawals from retirement accounts have almost always come with some kind of fee or penalty, a recent IRS change gives account holders penalty-free access up to $1,000 in retirement funds from a pension-linked emergency saving account (PLESAs) in the case of financial emergencies, which became effective under a provision in SECURE 2.0 in 2024.

“Employers need to coach their employees on all the realities of retirement savings, not just best practices, and talking about the pros and cons of early withdrawals is a conversation that’s relatively easy to have at most companies,” said Lewis. “For instance, most open enrollment conversations include some form of education on selecting retirement plans, figuring out how much to contribute, and the risks involved, but don’t necessarily touch on ‘what happens if you need to take some of this out?’ That’s a big opportunity for employers to teach employees about the other side of retirement benefits, and normalize what can be a useful tool for many.”

Related: ‘Rainy day funds’: A top priority for 70% of employees

Some more key findings from the survey:

• 2 out of every 5 people with retirement accounts have taken money out of them early, including more than 10% that have done so multiple times.
• About one-quarter of people (23%) regret taking money out of their retirement accounts early.
• Personal debt is the #1 reason for making an early withdrawal, cited by nearly one-fourth (24%) of people who have taken an early withdrawal.
• Only 43% report paying back the amount withdrawn

Aside from PLESAs, out-of-plan emergency savings accounts (ESAs) are another option for employers, “The more employers normalize the idea of “rainy day funds”, the better,” said Lewis. “I use one and have autopay set up to have money put away before I can even touch it, and it comes in handy when the unexpected comes up. The key to out-of-plan savings accounts is about encouraging participation. ESA’s can be extremely attractive to employees, especially if there’s any contribution from companies, but ultimately are only as good as their buy-in.”