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Retirement

Retirement Balances Hit Records — But Rising Withdrawals Tell the Other Half of the Story

Fidelity's latest quarterly snapshot shows average 401(k) and IRA balances climbing on market gains, even as more savers pulled cash out. Here's how to read both numbers — and what

By The Money Zone Editors Updated September 4, 2026

The short answer

Average retirement account balances rose again in the second quarter, largely because markets went up — not necessarily because savers changed their behavior. At the same time, Fidelity reported that a growing share of workers tapped their retirement accounts for cash through loans and hardship withdrawals. A record average balance and rising withdrawals are not contradictory signals; they describe two different groups of people. Market gains lift the average for everyone invested. Withdrawals reflect households under pressure right now.

The practical takeaway: a rising headline number is a poor gauge of whether your plan is on track, and the money you pull out early costs far more than the amount on the check.

Note: This article is general education, not individualized financial, tax, or investment advice. Plan rules, penalty exceptions, and tax treatment vary. Consider consulting a qualified professional about your own situation.

What the report actually measures

Fidelity publishes a quarterly look at the accounts it administers, covering tens of millions of workplace plan and IRA participants. Two things moved in the most recent update, per CNBC's coverage of the data: average 401(k) and IRA balances reached record levels alongside second-quarter market gains, and more savers tapped their accounts for cash.

A few things worth keeping in mind when a stat like "record average balance" crosses your feed:

  • Averages are pulled upward by large accounts. A relatively small number of long-tenured, high-income savers can lift an average well above what a typical participant holds. Median figures, when available, usually tell a more grounded story.
  • Market performance does most of the work quarter to quarter. A balance can hit a record in a quarter when contribution rates were flat and participation barely moved.
  • It reflects one provider's book. Fidelity is large, but its participant mix isn't a perfect stand-in for every American worker — especially those with no plan at all.

Why "leakage" matters more than the headline

Retirement professionals use the word leakage for money that leaves the system before retirement: hardship withdrawals, loans that never get repaid, and cash-outs when people change jobs. It is the quiet counterweight to every record-balance headline, because leaked dollars don't just reduce the balance — they remove decades of potential compounding.

The most common exit ramps work very differently:

401(k) loans

Plans that permit loans generally allow you to borrow the lesser of $50,000 or half your vested balance, repaid over about five years (longer if used to buy a primary residence). You pay interest to your own account, which sounds appealing — but the borrowed money is out of the market while it's repaid, repayments come from after-tax pay, and leaving your job can trigger an accelerated repayment deadline. An unpaid balance is typically treated as a taxable distribution.

Hardship withdrawals

These require an immediate and heavy financial need under plan rules. The money is generally taxable, may carry a 10% early-withdrawal penalty if you're under 59½, and — unlike a loan — cannot be paid back into the account. The contribution room is gone for good.

Penalty exceptions

Recent law created narrower escape hatches, including a once-a-year emergency distribution of up to $1,000, larger allowances tied to federally declared disasters, terminal illness, and certain domestic abuse situations, plus separate long-standing exceptions such as the "rule of 55" for workers who leave a job in or after the year they turn 55. Penalty relief is not tax relief: pre-tax dollars are still taxable income when withdrawn.

A hypothetical: what a $15,000 withdrawal really costs

Numbers below are illustrative and rounded; your tax rate and returns will differ.

Say a 40-year-old needs $15,000 in cash and takes a hardship withdrawal from a pre-tax 401(k).

  • Step 1 — the tax bite. Assume a 22% federal marginal rate plus a 10% early-withdrawal penalty, and ignore state tax for simplicity. That's roughly 32% off the top. To land $15,000 in hand, the gross withdrawal needs to be about $22,000.
  • Step 2 — the compounding bite. If that $22,000 had stayed invested and grew at a hypothetical 7% annually for 25 years, it would be worth roughly $119,000 by age 65.

So the real price of $15,000 today isn't $15,000. It's about $7,000 in immediate tax and penalty plus roughly $97,000 of forgone future balance — money that can never be recontributed, because annual limits apply going forward regardless.

Run the same scenario as a 401(k) loan instead, and the arithmetic softens considerably: no penalty, no immediate tax, and the principal returns to the account over five years. The cost shifts to lost market exposure during repayment and the risk that a job change turns the loan into a taxable distribution.

Alternatives and next steps

If cash is tight, the retirement account is rarely the cheapest source — but it's often the most visible one. Options worth weighing first, in rough order of cost:

  1. Cash and taxable brokerage funds. Selling from a taxable account may trigger capital gains, but no penalty and no lost tax-advantaged room.
  2. Roth IRA contributions. Direct contributions (not earnings, not conversions) can generally be withdrawn at any time without tax or penalty, since they were made with after-tax dollars. Ordering rules matter — check them before acting.
  3. Workplace emergency savings features. Some plans now offer linked emergency savings accounts, funded with after-tax dollars up to a modest cap, designed specifically to keep people out of their retirement principal.
  4. A 401(k) loan before a hardship withdrawal, if your plan allows it and your job feels stable — the tax math is dramatically better.
  5. Negotiation and hardship programs. Medical billing offices, servicers, and utilities frequently have payment plans that cost less than a 32% haircut.

If your situation is stable and you simply saw the record-balance headline, two checks are more useful than comparing yourself to an average: confirm you're capturing your full employer match, and confirm your contribution rate has kept pace with your pay since the last time you set it. Auto-escalation features quietly handle the second one in many plans.

Bottom line

Record average balances are mostly a market story. Rising withdrawals are a household budget story. The first tells you very little about your own readiness; the second is worth taking seriously, because early withdrawals convert a long-term asset into short-term cash at a steep and permanent discount. Build the emergency buffer that keeps the retirement account off the table, and let the compounding do what the headline is actually measuring.

FAQ

Does a record average balance mean I'm behind?

Not necessarily. Averages are skewed by very large accounts and reflect one provider's participant mix. Your own savings rate, time horizon, and expected spending are far more informative benchmarks than a national average.

Is a 401(k) loan always better than a hardship withdrawal?

It's usually cheaper on taxes, since a loan isn't a taxable distribution and carries no penalty. But it's not risk-free — leaving your employer can accelerate repayment, and an unpaid balance may become taxable. Plan rules differ, so read yours.

Can I put a hardship withdrawal back later?

Generally no. Unlike a loan, a hardship withdrawal cannot be repaid to the plan, and future contributions are still capped by annual limits. That permanence is the main reason it sits at the bottom of most cash-source lists.

Do I owe tax if I withdraw under a penalty exception?

Penalty exceptions waive the 10% additional tax, not ordinary income tax on pre-tax dollars. Roth accounts follow separate rules. Tax outcomes vary — a tax professional can confirm how a specific exception applies to you.

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