The proportion of people withdrawing their retirement savings for emergencies has doubled

It has become increasingly difficult for many Americans to accumulate sufficient savings, and many are struggling to afford emergency expenses, especially as the costs of things like home repairs or hospital stays rise faster than general inflation.

Workers must find alternative ways to bear these unexpected costs, such as taking out loans or reducing their retirement savings. At the end of 2024, about 5% of employees took hardship withdrawals from their retirement savings account, compared with 2% of employees who did so in 2018, according to Fidelity Investments data.

All withdrawals from a traditional individual retirement account (IRA) or 401(k) are subject to standard income taxes. If a withdrawal is made before age 59½, a 10% penalty tax is imposed on the amount distributed. However, if the early withdrawal is made based on hardship, which is defined as “immediate and heavy financial need,” the funds taken are not subject to the additional tax.

With inflation remaining high in 2025, it will become increasingly difficult for Americans to set aside money for an emergency savings account. In 2024, 13% of adults reported that they would not be able to pay a $400 emergency expense by any means, and 37% said they would cover expenses by borrowing money or selling something, according to the Federal Reserve’s latest report on the economic well-being of American households.

What Americans have in their savings is not keeping up with the rising costs of unexpected expenses, such as a car breakdown, a surprise medical bill, or damage to their home.

Vehicle repairs

Vehicle maintenance and repair costs increased by 7.7% in September compared to the same period last year. This is higher than the 3.0% annual increase in headline inflation over the same time period. Compared to five years ago, the cost of car repairs has risen by about 44%, according to Consumer Price Index data.

Since the COVID-19 pandemic, when supply chain disruptions drove up parts costs, the pace of repairs has increased. The cost of car repairs in early 2025 is $838, according to data from Cox Automotive. More recently, President Donald Trump’s tariffs on imported steel, aluminum and auto parts are expected to raise the cost of car repairs even further.

Health emergencies

The cost of a hospital stay is about 25% higher than it was five years ago, and the cost of hospital services has increased over the past year at nearly twice the speed of general inflation, according to CPI data.

Much of the increase in costs is due to challenges faced by many hospitals, including workforce shortages. Labor is the largest category of hospital spending, and as hospitals try to close their staffing gaps, they are increasing wages to retain and hire workers, according to an analysis by the American Hospital Association.

In addition, Medicare and Medicaid benefit amounts have generally lagged behind inflation, making it difficult for these patients to afford health care and leaving hospitals to make up billions of dollars in underpayments, the American Heart Association said. It is also possible that these funding gaps will be exacerbated by upcoming cuts to Medicaid.

Home repairs

Natural disasters are becoming more frequent and devastating, resulting in homeowners spending more money on repairs.

The majority of home contractors, including HVAC, electrical, plumbing and roofing, said they had to raise their prices due to tariffs that increase the cost of home repair items. From July 2024 to July 2025, the cost of rebuilding homes, which includes materials and labor, increased by 4.2%, according to a recent report from Verisk, a data analysis and risk assessment firm.