One-Third of Americans Withdraw 401(k) Balances After Job Changes—What Is Driving This Trend?

Retirement savers are generally putting more into their 401(k) accounts these days, but much of the money Americans are saving for their future doesn’t end up lasting until then.

That’s because a large portion of employees withdraw their 401(k) balance in a lump sum when they leave a job, rather than rolling it over to their new employer or into another account, or leaving their balance where it is.

One-third of those who have Vanguard-administered 401(k) plans and left a job did this, according to Vanguard’s How America Saves 2025 report.

A Threat to Retirement Security

“Cash-outs undermine retirement security,” Kelly Hahn, head of retirement research at Vanguard and one of the authors of the report, said.

Cashing out before age 59 ½ incurs a 10% early withdrawal penalty for most people, and you must pay income taxes on the withdrawal. Not only does the penalty sting, but so does realizing that the time and effort it took to save that money and have it compound are effectively wasted, along with the money that could have helped fund necessary retirement expenses later on.

Hourly workers incur these penalties more often, according to Vanguard. Among those who leave their jobs, 42% of hourly workers cash out their accounts, compared to only 21% of salaried workers. 

While lower-income workers tend to cash out their 401(k) balances more than higher-income workers, hourly workers with similar incomes to those working on a salary were still 10 to 15 percentage points more likely to cash out, possibly because of income volatility, Vanguard found.

Cash-Outs Often Take Full Balances

Those who do opt to cash out their 401(k) accounts are also more likely to cash out the full balance, rather than just a portion. Vanguard says this could be because it is an opportunity when savers can take the entire balance, versus hardship withdrawals and 401(k) plan loans, which have specific caps. However, there isn’t hard evidence that this is why people choose this route.

A 2025 survey by the Transamerica Center for Retirement Studies found that 37% of workers reported taking a loan, making an early withdrawal, or taking a hardship withdrawal from their 401(k), IRA, or similar retirement account. 

Across generations, a financial emergency is the most frequently cited reason for taking a loan from a 401(k) or similar plan in the Transamerica Center report. Other reasons include paying off debt, everyday expenses, unplanned major expenses, medical bills, and home improvements. 

Financial experts stress the important role an emergency fund can play in reducing the number of people who take early withdrawals from their retirement accounts. 

For example, those with $2,000 in emergency savings have lower loan origination rates and hardship withdrawal rates, and were 43 percentage points less likely to cash out their retirement balances after a job change than savers with less in reserve, according to Vanguard.