Trump Says '401(k)s Are Way Up' - But Workers Are Tapping Them At Record Rates

During President Trump's recent State of the Union address, he announced that 401(k) retirement plan balances were way up. Because of that, he explained that the administration wanted to ensure all Americans had access to 401(k) plans, so he is launching a new 401(k) plan for those who don't have one through their employer.

Although retirement plan balances have increased, the percentage of employees who have taken early withdrawals from their 401(k) has also increased. That means even though balances are up, many workers are still struggling to cover emergencies and meet basic needs.

Trump is correct; 401(k) balances are up

The data supports President Trump's State of the Union Address Statement that 401(k) balances are way up. Fidelity Investments research shows that as of Q4 2025, 401(k) balances have increased by over 11% from the previous year. The Fidelity data also showed other positive trends, including strong growth in 401(k) balances among women, too.

Vanguard reported that its average 401(k) participant reached a record high balance of nearly $168,000, a 13% increase from last year. Both Vanguard and Fidelity are major 401(k) plan providers.

There are more 401(k) millionaires than ever

According to research from Empower, just over 9% of workers have more than $1 million in their retirement accounts. And, Fidelity's data shows that this club now includes 665,000 people, indicating higher savings rates and investment gains.

These millionaires are not overnight successes. The average retirement account balances by age show that most workers become retirement account millionaires in their 50s. This shows investment accumulation over time throughout the course of a career, rather than a single year of positive investment returns. In other words, disciplined investors who start investing early are more likely to reach this milestone.

The downside: hardship withdrawals are at record highs

Despite the good news of increased retirement account balances and the number of 401(k) millionaires, there are some downsides to the data, too. 

Vanguard's workplace insights show that the number of workers taking hardship withdrawals has increased over the past few years. In 2025, 6% of participants made a withdrawal compared to 5% in the year before.

Why workers are taking more hardship withdrawals

There are two reasons why workers are taking more early withdrawals from their retirement accounts. First of all, increasing inflation has made everyday living costs more expensive. Grocery prices, gas prices, and home prices have all gone up, and many families decide to take a withdrawal in order to cover basic needs.

The second reason why workers take early withdrawals is that more people are being auto-enrolled into 401(k) plans. That means more people are using plans, but it also means some people who would rather not participate are automatically enrolled.

The true cost of a hardship withdrawal

The biggest downside to hardship withdrawals, especially for workers under 59 1/2, is that the IRS charges workers a 10% early withdrawal penalty. Additionally, workers must pay income taxes on the amount they receive. These charges can reduce the amount workers thought they'd be getting by withdrawing funds.

The most significant cost, however, is lost time in the market. When workers withdraw money from their retirement accounts, those funds can no longer work on their behalf to grow and compound.

Alternatives to consider during a financial emergency

Instead of taking a hardship withdrawal, another option some employees might have is taking out a 401(k) loan. 

While there are benefits and drawbacks to a 401(k) loan, the difference between that and a hardship withdrawal is that employees can pay themselves back for the loan, and they won't be charged a 10% penalty.

The retirement savings gap tells a different story

Ultimately, it's true that 401(k) balances are up. It's a positive trend that more people are contributing to their accounts and that there are more 401(k) millionaires than ever before. However, it's typically workers who have been investing for a long period of time and have higher incomes who are able to meet this milestone.

Other data shows that our hourly workers and low-income employees were more likely to take hardship withdrawals because they had financial needs. For those earning under $100,000, 70% of hardship withdrawals are so employees can cover medical expenses or avoid eviction or foreclosure. This disparity reveals a significant gap in income and in the ability to invest in a 401(k) and leave earnings in the account.

Bottom line

The goal of most Americans is to save, invest, and have a calm, stress-free retirement. However, the path isn't always linear for all employees, especially those feeling the pressure to afford everyday items. These employees may have to make hardship withdrawals to meet basic needs, and many who do were automatically enrolled in a plan when they started working.

Although the percentage of employees needing hardship withdrawals has increased, overall 401(k) plan participation has also increased, and that's good news. It's also positive that retirement balances are up and that there are more 401(k) millionaires than ever before.

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