The AI bubble and data center buildout have helped catapult equity markets to new highs (pre-Middle East conflict), minting a record number of 401(k) millionaires. However, beneath the surface, hardship withdrawals from 401(k) plans have also climbed to a record, reinforcing the view that the K-shaped economy is becoming more entrenched.

Vanguard's How America Saves 2025 report shows that hardship withdrawal activity "increased to a new high" of 6% in 2025, up from 4.8% in 2024 and about 2% before the pandemic.

The increase marks the sixth straight annual rise since Congress eased the rules in 2018 by removing the requirement that participants first take a 401(k) loan. Vanguard said the median hardship withdrawal was about $1,900 for avoiding foreclosure or eviction (36%), paying medical expenses (31%), and covering tuition (13%).

"Given that it's now easier to request a hardship withdrawal and that automatic enrollment is helping more workers save for retirement, especially lower-income workers, a modest increase isn't surprising," the Vanguard report said.

The report noted, "For a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that may not otherwise have been available without plan-implemented automatic solutions."

The report shows the K-shaped economy is continuing with no end in sight as the cost-of-living crisis rages on, forcing those with the weakest financial profiles to tap into 401(k)s and retirement accounts just to stay afloat.

"Withdrawing from your 401(k) has become one of the easiest ways to access excess capital," Shelby Rothman, founder of EnJoy Financial, told CNBC Select.

Rothman said, "Nearly half of Americans don't have $1,000 for unexpected expenses — no emergency fund, no available credit. Nothing."