Perspectives : Financial wellness | August 15, 2025

Mitigating 401(k) leakage with emergency savings

Fiona Greig, Ph.D.
Vanguard Global Head of
Investor Research and Policy

Kelly Hahn
Vanguard Head of
Retirement Research

Aaron Goodman, Ph.D.
Vanguard Investment
Strategy Analyst

American workers are making strides in saving for retirement—among eligible workers in Vanguard-administered retirement plans, 82% participated in 2024 (Vanguard, 2025). Yet our research shows that what goes in sometimes comes out earlier than expected. We explore why early withdrawals happen and share survey insights about how emergency savings can help preserve retirement savings.

Despite an overall positive trend toward retirement readiness, Vanguard’s How America Saves 2025 revealed that roughly a third of participants cash out their savings when they leave their jobs, and some withdraw funds while still employed. This behavior can significantly impact long-term retirement outcomes.

Income volatility and its impact

Roughly 55% to 60% of those in Vanguard-administered plans are hourly workers, and those workers face nearly triple the income volatility of their salaried peers (Goodman, Hahn, and Greig, 2025; Ganong et al., 2024). On average, their monthly income, based on a median annual income of $64,000, can swing up or down by about 15%, while salaried workers see changes of about 5%. This instability makes hourly workers more likely to dip into their retirement savings unless they have a financial buffer. A recent Vanguard white paper, Emergency Savings Protect Retirement Savings, highlights the need for short-term savings solutions—particularly for hourly workers—to help cover unexpected expenses and support retirement goals.

Many workers see their income change unpredictably from month to month. An emergency savings buffer can help households deal with volatility and preserve their 401(k) wealth for retirement, said Vanguard economist Aaron Goodman.

Gauging preparedness in an emergency

In 2024, we surveyed approximately 2,300 Vanguard 401(k) plan participants and asked how confident they were in their ability to cover a $2,000 emergency expense.

Emergency savings access for hourly and salaried workers

Notes: The sample surveyed consisted of 2,355 workers who participated in a Vanguard-administered 401(k) plan in 2024. The survey question asked, “How confident are you that you could find the money to pay for an emergency that costs about $2,000?” See Paulo Costa, Marsella Martino, and Malena de la Fuente’s The Relationship Between Emergency Savings, Financial Well-Being, and Financial Stress for additional survey results and methodological details.

Source: Vanguard.

The results were telling: Among those surveyed, 71% of salaried employees reported having access to liquid emergency savings, compared to 39% of hourly employees. And more importantly, those with emergency savings, regardless of whether they were hourly or salaried workers, exhibited much better savings behaviors by contributing more to their 401(k) accounts and taking fewer withdrawals both during and after leaving their jobs, even in an analysis that controlled for annual income, age, and employee tenure. This highlights the need for emergency savings solutions, particularly for hourly workers.

Participants with emergency savings contributed more to and withdrew less from their 401(k) accounts

Notes: The sample used for this figure consisted of 2,355 workers who responded to an emergency savings survey in July 2024 and participated in a Vanguard-administered 401(k) plan for all of 2024. The original survey question asked, “How confident are you that you could find the money to pay for an emergency that costs about $2,000?” We classified participants as having at least $2,000 in emergency savings if they answered “entirely confident” (rather than “somewhat confident” or “not at all confident”). We analyzed contribution and withdrawal behaviors in Vanguard’s administrative recordkeeping data (that is, we did not rely on participants to report these behaviors in the survey). The figure shows estimates from regressions that control for annual income, age, employment tenure, and plan fixed effects. Contribution, loan origination, and hardship withdrawal rates are annual rates from 2024 data. We analyzed cash-out rates for a subset of 140 participants who left their jobs in 2025. All regression estimates shown in this figure are statistically significant at the 1% level.

Source: Vanguard.

We found that participants with at least $2,000 in emergency savings:

Contributed an additional 2.2 percentage points of income to their 401(k) accounts.
Were 19 percentage points less likely to take a 401(k) loan.
Were 17 percentage points less likely to take a hardship withdrawal from their 401(k).
Were 43 percentage points less likely to cash out their 401(k).

These findings indicate that emergency savings can play a pivotal role in retirement success. Even a modest financial cushion can reduce the chance of an early withdrawal and help participants stay on track to reach their long-term financial goals.

References:

Costa, Paulo, Marsella Martino, and Malena de la Fuente, 2025. The Relationship Between Emergency Savings, Financial Well-Being, and Financial Stress. Vanguard. corporate.vanguard.com/content/dam/corp/research/pdf/relationship_between_emergency_savings_
financial_well_being_financial_stress.pdf.

Ganong, Peter, Pascal Noel, Christina Patterson, Joseph Vavra, and Alexander Weinberg, 2024. Earnings Instability. University of Chicago and NBER.
bpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/1/801/files/2024/03/earnings_instability-8ec8ba2640feedb4.pdf.

Goodman, Aaron, Kelly Hahn, and Fiona Greig, 2025. Emergency Savings Protect Retirement Savings. Vanguard.
corporate.vanguard.com/content/dam/corp/research/pdf/emergency_savings_protect_retirement_savings.pdf

Vanguard, 2025. How America Saves 2025. institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/2025/has/2025_How_America_Saves.pdf.

Notes: All investing is subject to risk, including possible loss of principal.

Mitigating 401(k) leakage with emergency savings

Income volatility and its impact

Gauging preparedness in an emergency

Emergency savings access for hourly and salaried workers

Participants with emergency savings contributed more to and withdrew less from their 401(k) accounts

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