A shocking 46% of Gen Z has withdrawn funds from their retirement accounts, according to a recent study from Payroll Integrations [1]. While 42% of Gen Z withdrawals went toward paying off debt, that doesn’t help them rebuild their retirement nest egg.

Gen Z employees are the most likely to pull from retirement savings, but they’re not alone. About one in three workers across generations plan to tap their retirement funds in the next year, most often to cover emergencies or everyday expenses.

With the average personal savings rate hovering around 4%, a historically low rate, it’s no surprise that many Americans are feeling squeezed.

An Empower survey found 37% of Americans couldn’t afford an emergency expense over $400 [2]. About 25% said they’d use a credit card to cover a $1,000 emergency [3].

All of these numbers point to a fragile financial reality for Americans. Some workers watch their retirement savings grow and can’t help but think how useful that money would be right now. But dipping into those accounts early comes with long-term consequences.

Pulling money from your retirement account may solve an immediate cash crunch, but it sets you up for a smaller nest egg later in life.

Early withdrawals often come with penalties and taxes. For example, if you take money from a 401(k) before 59 1/2, you’ll usually face a 10% early withdrawal penalty on top of regular income taxes [4].

The real hit, though, comes from lost growth. Say you withdraw $10,000 from your 401(k) at age 25 to pay off debt. With a 7% annual return, that money could have grown to about $150,000 by age 65. You’ll likely miss it in retirement [5].

Less money in your account could force you to work longer or lower your standard of living later on. And many Americans already face that possibility. A study from the Center for Retirement Research at Boston College found that 39% of working-age households won’t be able to maintain their current lifestyle in retirement [6].

Read more: Rich, young Americans are ditching stocks — here are the alternative assets they’re banking on instead

Using retirement funds to pay off debt might feel like a smart move, after all, you’re cutting down bills now. But in reality, you’re trading today’s problem for tomorrow’s, with less saved when you’ll need it most.

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There are very few situations where pulling money early makes sense. Extreme safety concerns, such as escaping domestic violence, might be one [7].

If you are considering taking money out of your 401(k) or other retirement account, talk to a financial advisor. They can help you map out a plan that doesn’t involve raiding your retirement savings. If debt is your main issue, a financial planner can often design a payoff strategy that keeps your retirement intact.

For some, the answer is to tighten your spending. Cut back on non-essentials like eating out or impulse buys. Go through your spending with a fine-tooth comb — you might be surprised at what you can trim and redirect toward debt payments.

For others, earning more might be the better solution. Ask for a raise, look for a higher-paying job, pick up extra hours or even start a side hustle. About 45% of Americans have a side hustle, according to a recent survey, earning an average of $688 a month [8]. That extra cash could make a real difference in paying down debt and building savings.

Once you get your finances under control, prioritize building an emergency fund with three to six months’ worth of expenses. That cushion gives you a safety net, so the next time life throws you an unexpected bill, you won’t have to raid your retirement savings.

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[1]. Payroll Integrations. “Employee Financial Wellness Report 2025” [2]. Empower. “37% can’t afford an unexpected expense over $400: new Empower research” [3]. Bankrate. “Bankrate’s 2025 Annual Emergency Savings Report” [4]. IRS. “Retirement topics – Exceptions to tax on early distributions” [5]. U.S. Securities and Exchange Commission. “Compound Interest Calculator” [6]. Center for Retirement Research at Boston College. “Do We Have a Retirement Crisis?” [7]. Fiduciary Pension Partners. “The IRS Issues Guidance on Withdrawals for Domestic Abuse Victims” [8]. Self Inc.. “Side hustle statistics: Everything to know about side hustles”

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