A growing number of Americans are doing something financial advisors almost always warn against: pulling money out of their 401(k) before retirement.
In a FOX 32 Chicago segment hosted by Terrence Lee and Sylvia Perez, the anchors pointed to a new figure reported by The Wall Street Journal: 6% of U.S. workers pulled money from their 401(k) last year because they needed it, up from just under 5% the year before.
That may not sound huge at first glance, but it matters because retirement money is supposed to be the part of a household’s finances that stays off limits until much later. When more people start tapping it early, it usually means something is going wrong somewhere else.
And that, really, is the heart of the story. People are not cracking open retirement accounts because they suddenly think it is smart. They are doing it because day-to-day life has become expensive enough that long-term planning is getting shoved aside by short-term survival.
FOX 32 brought in Aristotle Makris, a financial advisor with Goldstone Financial Group in Oak Brook, to explain what is driving the shift and what the risks look like once people start raiding those accounts.
Inflation, Stagnant Wages, And Households Under Pressure
When Terrence Lee asked what is pushing more people to withdraw from retirement early, Makris did not point to just one cause.
He said it is “a combination of things,” starting with inflation. Grocery bills, he noted, have risen substantially, and he said wages do not appear to be keeping up with the rate of inflation.
That mismatch creates pressure fast.
It is one thing for prices to rise when incomes are rising too. It is another thing entirely when families feel like every trip to the store costs more, every monthly bill bites harder, and paychecks do not stretch the way they used to.
Makris also added another factor that is less comfortable but probably true in many households: people often live outside their means. He suggested that this may be one of the bigger contributing factors.
That part can sound harsh, but it is probably more honest than rude. There are families getting crushed by costs they cannot control, and there are also households that kept spending like the old economy still existed. In many cases, it is probably both at once. Costs rose, wages lagged, and families that already had no cushion got cornered even faster.
That is why the 401(k) starts looking less like a retirement tool and more like an emergency escape hatch.
Why An Early Withdrawal Hurts So Much
Sylvia Perez asked the next question that almost every viewer would ask: what happens when someone actually pulls money from a 401(k) early?
Makris’ answer was blunt. It gets expensive, especially if the person is under 59 and a half.
He explained that an early withdrawal triggers ordinary income tax and, on top of that, a 10% early withdrawal penalty. In other words, the damage starts immediately.
Makris gave a simple example. If someone is in the 22% tax bracket, then a withdrawal could mean 32% of every dollar disappears right away once the tax hit and penalty are combined.
That is brutal, and it is the sort of math people often do not fully absorb when they are stressed.
If someone takes out retirement money because they are desperate to solve a cash problem, losing nearly a third of it before it even lands in their hands makes the move even more painful. What feels like a rescue can turn into a very expensive form of relief.
And that is before you even get to the long-term cost.
Because the real wound is not only the taxes and penalty. It is also the fact that the money is no longer sitting there compounding over time. A dollar taken out today is not just a dollar lost. It is all the future growth that dollar might have produced over the years.
That is why advisors hate seeing people do this unless they truly have no other path.
The Better First Step Is Usually Planning, Not Panic
When the anchors asked what someone should do instead of dipping into retirement, Makris did not start with a fancy investment trick or some secret financial product.
He started with planning.
He said the first step is taking an honest look at your own life, your own income, and your own outflows. In plain language, that means figuring out what you can live with and what you can live without.
That may sound obvious, but it is often the step people skip because it is uncomfortable. Most people want to preserve the lifestyle they are used to. As Makris put it, everyone wants to maintain the lifestyle they want to maintain, but sometimes the reality is they cannot afford it.
That is not a popular message, though it is an important one.
There is a lot of financial advice in the world that sounds exciting because it promises more: more returns, more leverage, more strategies. Makris’ advice is much more grounded. Before you break open your future, stop and ask what in your present can actually be cut, changed, delayed, or renegotiated.
He said people may be surprised by how many vendors are willing to work with them, sometimes on an interest-free basis, to stretch out payments and buy time.
That is a useful point because many households treat bills as fixed, rigid, and untouchable. Some are. Some are not. Sometimes the better move is a hard phone call, not a retirement withdrawal.
Borrowing From A 401(k) Is Still Risky, But Different
Makris also pointed out that many 401(k) plans offer another option: borrowing against the account rather than taking a straight withdrawal.
He made it clear that this is not recommended, but he said it can still be a relatively inexpensive way to secure a loan during rough times because the borrower is paying it back through payroll deduction.
That distinction matters.
A withdrawal is money taken out and taxed, with a penalty if the person is too young. A loan, by contrast, at least creates a path to put the money back. It is still not ideal, and it still comes with risk, but it can be less destructive than a permanent early pull.
Even so, this part of the discussion underscores how financially stretched many people are becoming. When retirement borrowing starts sounding like a practical option, it usually means the rest of the balance sheet is already under strain.
That is the troubling piece of the larger trend. Americans are not just choosing between good and bad options. Many are choosing between bad and worse.
Once You Pull The Money, Rebuilding Gets Hard
Terrence Lee and Sylvia Perez then turned to what someone can do if they have already taken money out.
Makris said rebuilding a retirement account after an early withdrawal comes down to one word: discipline.
He said people have to create a system of savings because once the pattern of compounding is broken, the recovery period becomes very difficult. That is one of the most important ideas in the whole segment.
Compounding is powerful partly because it rewards time and consistency. Once you interrupt it, you do not simply restart from the same place. You are trying to catch up after losing both money and time.
Makris suggested that people in this situation need to step back and do real planning, especially if they feel like everything is already slipping behind. He also said it can help to work with a financial planner, not because that magically fixes the problem, but because a planner brings structure, discipline, and a level of independence.
That last point is underrated.
A good planner is not emotionally tangled up in the spending habits, the excuses, or the day-to-day panic. As Makris put it, they are going to tell it to you the way it is. That may not always feel good in the moment, but it is probably better than drifting further into financial damage.
This Trend Feels Like A Warning Sign
What makes the FOX 32 segment stand out is that it does not treat early 401(k) withdrawals as some quirky personal-finance story. Lee and Perez frame it for what it really is: a sign that more households are under pressure.
When 6% of workers are pulling from retirement early, that suggests a lot of people are no longer using their 401(k) as a future nest egg. They are using it as backup cash for a present that has become too expensive.
That is a troubling shift because retirement money is supposed to represent stability later on. Once it starts getting used to patch over current bills, the future gets weaker in order to keep the present afloat.
And that is probably why this trend feels bigger than just one statistic.
Makris is right that some of this comes down to discipline, overspending, and planning. But he is also right that inflation and weak wage growth are squeezing people hard. It is not just bad budgeting. It is a more expensive country to live in than it was a few years ago, and more families are feeling that in ways they cannot hide.
Retirement Is Becoming The Emergency Fund Of Last Resort
By the end of the segment, the message from Terrence Lee, Sylvia Perez, and Aristotle Makris was fairly clear: tapping a 401(k) early may solve a short-term emergency, but it comes with a painful price.
There are taxes. There are penalties. There is lost growth. And there is the hard truth that rebuilding later is rarely easy.
Still, the most revealing part of the story may be what this says about household budgets in 2026. If more workers are willing to raid retirement to stay afloat, then the problem is not just poor planning in isolated cases. It is broader financial strain showing up in one of the last places people are supposed to touch.
That is why the trend deserves attention. It is not only about retirement accounts. It is about how many Americans now feel squeezed enough to treat tomorrow’s money like today’s emergency fund.
And once people reach that point, it usually means they ran out of easier options long before they ever logged into that 401(k).
Mark grew up in the heart of Texas, where tornadoes and extreme weather were a part of life. His early experiences sparked a fascination with emergency preparedness and homesteading. A father of three, Mark is dedicated to teaching families how to be self-sufficient, with a focus on food storage, DIY projects, and energy independence. His writing empowers everyday people to take small steps toward greater self-reliance without feeling overwhelmed.
