401(k) balances hit record $155,800 as hardship withdrawals climb to 3%

Retirement savers saw their account values surge to all-time highs in the second quarter, yet a growing share tapped those funds for loans and hardship withdrawals as persistent inflation strained household budgets, according to data published Thursday by Fidelity Investments, the nation's largest 401(k) plan provider.

"When you combine positive market performance with steady and consistent savings rates, that's when you see these positive gains," said Mike Shamrell, vice president of workplace thought leadership at Fidelity Investments.

The average 401(k) balance rose 13.1 percent year over year to $155,800, while the typical individual retirement account gained 10 percent to $144,523 — both records. The average 403(b) account advanced nearly 12 percent. Market gains drove much of the increase: the S&P 500 rose about 10.2 percent in the first half of 2026, the Nasdaq Composite gained 12.8 percent and the small-cap Russell 2000 surged more than 20 percent. The average 401(k) contribution rate, including employer and employee matches, held steady at 14.4 percent, just below Fidelity's recommended 15 percent benchmark. The quarterly performance was the strongest for 401(k) balances since December 2020.

Yet the share of workers carrying an outstanding 401(k) loan reached 19.5 percent in 2026, up from 19.2 percent at the end of March, and the share taking hardship withdrawals rose to 3 percent from 2.6 percent a year earlier. The uptick may be "a sign that household finances are becoming more strained," said Cathy Curtis, a certified financial planner and founder of Curtis Financial Planning in Oakland, California.

Hardship withdrawals signal an affordability crunch

Higher prices for necessities such as groceries and gasoline have been a particular pain point for most U.S. households against a backdrop of persistent inflationary pressures. "The No. 1 problem in the U.S. economy right now is inflation," Heather Long, chief economist at Navy Federal Credit Union, said in an email. "Meanwhile, the No. 2 problem in the economy is affordability."

"Everyday expenses, such as housing, utilities, groceries and transportation, have risen significantly over the last few years and if wages haven't kept pace with someone's cost of living, or if their lifestyle has become more expensive, they may find themselves in a cash crunch," Curtis said.

A hardship withdrawal can be taken from a retirement plan without paying an early-withdrawal penalty as long as the investor has an "immediate and heavy financial need," according to the IRS, such as avoiding foreclosure, eviction or unforeseen health expenses.

The cost of tapping retirement savings early

Tapping a 401(k) should be a last resort, Curtis said. "The biggest downside is that borrowing or withdrawing from a 401(k) disrupts long-term retirement savings," she said.

So-called leakage from 401(k) plans — especially cashing out an account before retirement age — undermines the power of compound interest. There is also a "behavioral downside," Curtis added. "Once a 401(k) is used for daily expenses, it can be easier to tap it again, further eroding retirement saving."

The swelling balances have expanded the ranks of retirement investors with accounts exceeding $1 million. The total number of such investors grew nearly 30 percent compared with the second quarter of the prior year. As of the end of June, 769,000 401(k) accounts held $1 million or more, up from 654,000 in the prior quarter, and 684,140 IRA accounts reached that milestone, compared with 571,622 at the end of March. Generation X accounts for the majority of these millionaires at 62 percent, followed by baby boomers at roughly 31 percent and millennials at 6 percent.

These individuals have adhered to consistent, routine contributions. The typical 401(k)-generated millionaire is 58 years old and has been saving for an average of 25 years. Their personal savings rate averages about 17.3 percent, which climbs to 25.8 percent when employer matching contributions are factored in. The data draws from Fidelity's 27,300 defined-contribution plans across various companies, encompassing 25.8 million participants.

This article is for informational purposes only and does not constitute investment advice.