The American Association of Retired Persons (AARP) and Fidelity Investments warn that early withdrawals from 401(k) retirement plans could incur ordinary income tax and a 10% penalty, leading to a total loss of 25% to 35%. Faced with rising living costs, an increasing number of Americans are considering early withdrawals from their retirement savings. A Vanguard report indicates that 6% of 401(k) participants made early withdrawals due to financial hardship in 2025, up from 5% in 2024.