Why Your Future Retirement Might Be Borrowing from Your Present Savings

Imagine Your Future Self Needs Help Now

Think of your retirement savings like a special piggy bank that’s meant for your much, much older self. You’re supposed to add coins to it over many years, and when you’re finally old enough to stop working, you can break it open and use all those coins for whatever you want – maybe to travel, enjoy hobbies, or just relax.

Now, imagine that one day, your “present self” has a really big, unexpected problem. Maybe your car suddenly breaks down and it costs a lot to fix, or you have a surprise medical bill that you can’t pay with your regular money. You look around, and all your other money jars are empty or not big enough. You remember that special “older self” piggy bank. It has a lot of coins in it, but it’s locked until you’re way older.

This is kind of what’s happening to a lot of grown-ups right now. They’re faced with these “present self” emergencies, and they’re finding a way to open that “older self” piggy bank early to grab some coins. This article is about why that’s happening and what it might mean for them, and even for you, down the road.

The “Borrowing from Your Future” Trend

Financial experts at a company called Vanguard looked at how people are saving for retirement. What they found is that a growing number of people are dipping into their retirement accounts – specifically, accounts called 401(k)s – to cover unexpected costs. In 2025, for example, 6% of people in Vanguard’s 401(k) plans took money out for emergencies. That might not sound like a lot, but it’s more than the 5% who did it in 2024, and it’s part of a trend that’s been happening for a while.

These early withdrawals are called “hardship withdrawals.” The government, through rules set by the IRS, allows people to take money out of these special retirement accounts for certain very specific, difficult situations. Things like needing to pay for medical care, or needing money to stop their house from being taken away if they can’t pay their rent or mortgage.

Why Are So Many People Doing This?

It’s not because people suddenly want to spend their retirement money now. It’s usually because they’re facing real financial pressure. Life can be unpredictable. Imagine you’re planning your weekly grocery budget, and suddenly your fridge breaks. You didn’t expect that cost, and you might not have enough in your “grocery money” jar to cover it. You might have to take some money from your “fun money” jar or your “new shoes” savings.

For adults, these unexpected costs can be much bigger. Think about a major car repair, a sudden job loss where their income stops, or a serious health issue for themselves or a family member. When people don’t have enough money saved in a separate “emergency fund” – a separate jar of money specifically for these kinds of surprises – they look for other places to get the cash. And their retirement accounts, especially if they’ve been saving for a while, can look like a tempting source of funds.

Jeff Clark, who studies how people save for retirement at Vanguard, explained that these retirement accounts are becoming a kind of “financial buffer” when people don’t have other options. He mentioned that because many companies now automatically sign their employees up for these retirement plans (called “auto-enrollment”) and people are saving more, they are building up bigger balances. This means they have assets available if a financial shock occurs. He even said it’s “inadvertently providing a financial safety net.” This means that even though the money is meant for retirement, it’s there if they absolutely need it for an emergency. If they hadn’t been automatically enrolled and saved, they might not have had any money to tap into at all.

Your Retirement Account: More Than Just Future Money

It’s interesting how these retirement accounts are evolving. Many people have bigger balances in their 401(k)s lately. This is partly because the stock market has been doing well, and partly because companies have made it easier for employees to save more. Features like auto-enrollment have helped many people increase how much they save.

At the end of 2025, the average retirement account balance was around $168,000. That’s a big number, and it was up 13% from the year before, largely thanks to those strong stock market gains. This means people have more money in these accounts than ever before, which is good for their future selves. But it also means there’s more money available to be withdrawn for emergencies.

Congress has also made it a little easier to take money out for emergencies. For instance, a law passed in 2022 allows people to take money out if they’re victims of domestic abuse or if they live in areas affected by federally declared disasters. This same law also lets people take out up to $1,000 every three years without paying a penalty, which is a nice little cushion.

In 2025, the typical amount people took out for an emergency was $1,900.

What Are These Emergencies?

So, what are the main reasons people are turning to their retirement savings? Vanguard found these were the top ones:

• Avoiding foreclosure or eviction: This means people are using their retirement money to make sure they don’t lose their homes or get kicked out of their apartments. This is a huge deal and shows how serious financial trouble can be. (36% of withdrawals)
• Medical expenses: Unexpected doctor bills, hospital stays, or treatments can pile up quickly and be very expensive. (31% of withdrawals)
• Tuition: Sometimes people need to pay for education, either for themselves or their children, and they don’t have the cash readily available. (13% of withdrawals)
• Primary residence repairs: If something major breaks in their house, like the roof or the heating system, it can be a costly emergency. (11% of withdrawals)
• Primary residence purchase: This one might seem a bit counterintuitive, as it’s about buying a home, not an emergency. However, sometimes people need a down payment or closing costs for a new home and might tap into their retirement funds if they lack other options. (5% of withdrawals)

The Bigger Picture: Are We Saving Enough?

These early withdrawals are a sign of a bigger problem: many Americans don’t have enough savings overall, especially for emergencies. When people have to tap into their retirement funds, it highlights that they likely don’t have a separate, easily accessible emergency fund.

Research from the National Institute on Retirement Security in 2026 showed that Americans are falling behind when it comes to saving for retirement. The average working-age American only has about $1,000 saved for their “golden years.” This number includes everyone, whether they have a retirement plan at work or not. That’s a very small amount for something that’s supposed to last for decades.

It’s not just about retirement savings either. Another report from AARP found that about 7% of people who are already retired are going back to work. The main reason? Financial pressures. They thought they had enough saved, but it turned out not to be the case, forcing them to work longer than they planned.

So What? Why Does This Matter to You?

Even though you might be 17 and not thinking about retirement yet, this trend is important for you to understand for a few reasons:

1. The Importance of an Emergency Fund: This news strongly shows why having a separate savings account for unexpected expenses is crucial. If adults are raiding their long-term retirement money for things like car repairs or medical bills, it means they didn’t have enough liquid cash readily available. For you, this means learning to save a little bit from any money you receive (from chores, gifts, or a future job) and putting it aside specifically for emergencies. This way, you won’t have to touch your long-term savings goals.
2. Understanding Financial Trade-offs: Every financial decision has consequences. When someone takes money out of their retirement account early, they lose out on potential growth. Money in retirement accounts can grow over time thanks to investments (like stocks) and compounding interest. Taking it out early means that money is gone, and it won’t have the chance to grow for your future self. This teaches you that even though you might have access to money, it’s important to think about the long-term impact of spending it.
3. The Value of Planning: This situation highlights that life doesn’t always go according to plan. Unexpected things happen. The more you can plan for these possibilities, the better off you