Retirement Retirement Planning

401(k) Balances Were Up at the End of 2025, But This Alarming Trend is On The Rise

Doing this can negatively impact retirement savings.

By Catherine Collins , Edited by Kristy DeSmit

Updated April 3, 2026

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Average 401(k) retirement plan balances have increased significantly over the past year, according to recent data. In fact, this is the third consecutive year of double-digit gains in 401(k)s. Part of the reason so much wealth has accumulated in 401(k)s is the SECURE 2.0 Act's mandate that employers automatically enroll employees in their plans.

However, while automatic enrollment helps employees streamline their retirement goals, it also enrolls people who might not want to invest in a plan. As a result, there's also been an increase in the number of hardship withdrawals from 401(k) plans.

Here's more information about growing retirement account balances, as well as what workers need to know if they're considering a hardship withdrawal.

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Leading financial firms report 401(k) balances are way up

According to a Vanguard report, the average 401(k) participant balance reached nearly $168,000. This number represents a 13% increase from the previous year, indicating strong growth among its numerous plan participants.

Data from Fidelity also shows significant growth. Their Q4 2025 report found that 401(k) balances under their firm increased by more than 11%.

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The number of 401(k) millionaires rises, too

Fidelity reported even more good news about 401(k) plan participants. That is, the number of 401(k) millionaires has also risen since the previous quarter. Currently, there are 665,000 people with more than $1 million in their 401(k)s, up from 654,000 in the third quarter of last year.

The increase in balances is due to several factors, including higher employee contribution limits and positive market returns.

401(k) balances reach their peak for workers in their 50s and 60s

According to research from a leading financial firm, Empower, employees in their 50s have an average 401(k) balance of $629,000. Employees in their 60s who are transitioning into retirement have an average 401 (k) balance of $576,755.

What these numbers show, especially when compared with lower 401(k) balances among workers in their 20s and 30s, is that building a nest egg takes time and consistency. Investments accumulate over the course of people's careers and are typically driven by the cumulative effect of investing in a 401(k) year after year, rather than by a single year of significant stock market returns.

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Not all workers are benefitting from 401(k) gains

Although many workers have seen 401(k) gains, especially in recent years, others are enduring financial hardships. Many people are struggling to afford basic necessities, such as groceries, gas, and home expenses.

In fact, according to the Brookings Institution, a third of middle-class families are unable to afford food, housing, and child care. These workers are more likely to stop 401(k) withdrawals or make an early hardship withdrawal to cover emergency expenses for basic needs.

Hardship withdrawals have increased

Vanguard's How America Saves 2026 report found that 6% of 401(k) participants made a hardship withdrawal in 2025, up from 5% the year before.

Data from Axios shows this is an even bigger increase than before the pandemic, when the hardship withdrawal rate was around 2%. This increase is likely due, in part, to the SECURE 2.0 Act, which allows workers to take out $1,000 without penalty. This withdrawal must, however, be used for approved emergencies.

The high cost of taking a hardship withdrawal

Although taking a hardship withdrawal from a 401(k) is easier now than in previous years, there is a high cost when withdrawing early from your 401(k). If workers exceed the $1,000 allowed for emergency expenses, they'll be subject to a 10% early withdrawal penalty if they are under age 59 1/2.

Taking a 401(k) withdrawal can also increase an employee's taxable income, resulting in more tax owed at tax time.

The highest cost, however, is the loss of investment potential from taking money out of a 401 (k). Once workers withdraw money, their contributions can no longer grow and compound in the market.

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How employees can grow their 401(k)s

Employees who want to focus on growing their 401(k) accounts over time can take a few steps to do so.

First, taking advantage of an employer match can help accelerate building a nest egg. Additionally, contributing as much as possible to the 401(k) maximum is helpful, as well as taking advantage of any opportunity to make catch-up contributions.

Bottom line

401(k) retirement account balances are at an all-time high. Additionally, the number of 401(k) millionaires is also on the rise. However, there's also been an increase in the number of people taking hardship withdrawals from their 401(k)s.

To build a large nest egg and enjoy a stress-free retirement, minimizing withdrawals and making consistent investments over the course of a career can help.

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