American retirement accounts are telling two starkly different stories at once. While 401(k) balances closed 2025 at all-time highs, a record share of workers raided those same accounts through hardship withdrawals — a split that has financial advisors warning the headline numbers mask deepening household stress.
Balances Reach Fresh Records
Vanguard reported that the average participant account balance in plans it administers rose 13% in 2025 from year-end 2024, hitting a record $167,970, with a median balance of $44,115 — a 16% year-over-year gain. Fidelity Investments, the largest U.S. 401(k) recordkeeper, reported the average balance in its plans climbed 11% to $146,400, marking the third straight year of double-digit increases.
The number of so-called 401(k) millionaires in Fidelity's plans rose to 665,000 in the fourth quarter of 2025, up from 654,000 the prior quarter. Roughly $10 trillion now sits in 401(k) accounts, making them the largest single retirement savings vehicle in the United States.
Hardship Withdrawals at All-Time High
The flip side is troubling. Vanguard's data show 6% of plan participants requested a hardship withdrawal in 2025 — a record, up from 4.8% in 2024 and triple the roughly 2% rate that prevailed before the pandemic. The median withdrawal was $1,900, and the most common reasons cited were foreclosure prevention, eviction avoidance, and medical bills.
"Despite rising balances, more workers are tapping their retirement savings in ways that can have lasting consequences," CNBC reported, citing financial advisors who say the trend points to persistent strain from housing costs and medical expenses even as equity markets push portfolios higher.
New Contribution Limits Take Effect
The IRS confirmed that the 2026 employee contribution limit for 401(k), 403(b), and Thrift Savings Plan accounts has risen to $24,500, up $1,000 from 2025. The catch-up contribution for workers ages 50 to 59 and 64-plus increased to $8,000, allowing a maximum total contribution of $32,500. The IRA limit also rose to $7,500.
Auto-enrollment and auto-escalation features — now standard in most large employer plans — continue to drive participation rates higher, which Fidelity and Vanguard both credit for much of the balance growth alongside strong equity returns.
"Peak 65" Pressure Builds
The data lands as the U.S. enters the so-called "Peak 65" wave, with more than 4.1 million Americans turning 65 each year through 2027 — the largest cohort in history to hit traditional retirement age. That demographic surge is putting unprecedented pressure on retirement systems and has prompted recordkeepers to accelerate digital tools, with an 87.3% increase in platform updates last year focused on retirement income planning and navigation, according to industry reports cited by Wealth Management.
What Advisors Are Watching
The split picture — record balances, record withdrawals — is forcing a reframing of how the industry talks about retirement readiness. Headline averages are skewed by older, higher-income participants, while younger and lower-balance workers are the ones disproportionately tapping accounts early. With markets near record highs and contribution limits rising, advisors are urging participants to treat hardship withdrawals as a last resort, given the long-term cost of forfeited compounding and the 10% early-withdrawal penalty for those under 59½.
For now, the equity tailwind is doing the heavy lifting. Whether balances hold their gains if markets cool — and whether the hardship withdrawal trend reverses or accelerates — will be the key retirement story of 2026.
Sources: Vanguard's How America Saves 2026 report, Fidelity Investments Q4 2025 retirement analysis, CNBC, Axios, CBS News, and the IRS Notice on 2026 contribution limits.