Americans' retirement accounts – and hardship withdrawals – hit new highs. Here's what to know

In an economic landscape shaped by volatility, uncertainty and inflation concerns, two retirement trends in the United States highlight a complex story about how Americans are managing their long-term financial security.

On one hand, retirement account balances are rising at a healthy pace, according to recent reports, and many workers are maintaining strong contribution rates despite market swings. On the other, an increasing number of Americans are tapping their retirement savings to cope with financial hardship.

Earlier this month, Fidelity Investment, an American financial services firm, released a report that found that average retirement account balances at the end of last year increased at double-digit rates.

The primary types of employer-sponsored retirement accounts — 401(k)s and 403(b)s — were up 11% and 13%, respectively, compared to the previous year, marking the third consecutive year of double-digit annual balance increases. Meanwhile, Individual Retirement Arrangement (IRA) accounts were up 7%.

The gains were fuelled by a combination of market performance and steady contributions from workers who continued to prioritise long-term savings despite broader economic uncertainty.

“Retirement savers remain committed to their financial futures by staying the course with their retirement savings,” Sharon Brovelli, President of Workplace Investing at Fidelity Investments, said in a statement. “The consistency so many Americans show in maintaining responsible savings behaviors and keeping a long-term perspective will serve them well in retirement.”

Fidelity’s report highlights how compound growth, combined with consistent contributions, is helping many workers build meaningful long-term savings. Employees also continue to take advantage of automatic enrolment features and employer matching programmes.

Fidelity, which manages assets of more than $7 trillion, also found that positive savings practices span generations.

For older workers in Generation X, savings rates have reached levels that align with recommended targets as they approach retirement age. Meanwhile, younger workers in the Millennial and Generation Z cohorts are demonstrating early engagement with retirement planning, including increased use of personal retirement contributions that can offer tax advantages over the long term.

The World Economic Forum’s Global Retail Investor Outlook also found that younger workers are developing stronger investing habits, with 30% of Generation Z starting to invest in early adulthood, compared to just 6% of baby boomers.

Although retirement balances are trending upward — even leading to a record number of 401(k) millionaires — research suggests that savers still face challenges.

Access plays a role. Only around 40% of workers ages 18 to 65 have access to a workplace retirement plan, vehicles experts say are crucial to retirement readiness. Furthermore, part-time, lower-income workers are less likely to have access to such plans or to participate when they are available. These facts contribute to a reality where just four in 10 Americans at any age are on track to maintain their current standard of living in retirement.

Economic shocks and short-term financial stress are also disrupting long-term savings strategies.

Vanguard, an American investment advisory firm, found in a report released this month that approximately 6% of participants in its administered 401(k) plans took hardship withdrawals in 2025. That figure marks a notable increase from the roughly 4.8% the year prior and stands above pre-pandemic levels.

Hardship withdrawals are generally permitted for pressing financial needs such as avoiding eviction or foreclosure, covering medical expenses or addressing other urgent expenses.

“For a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that may not otherwise have been available without plan-implemented automatic solutions,” Vanguard’s report stated.

Vanguard did not break down its hardship withdrawal data by demographic detail, but a separate small sample survey found financial insecurity is driving withdrawals across age groups, with 46% of Generation Z savers saying they've used hardship withdrawals to cover unexpected bills and pay down debt.

Experts note that even relatively modest withdrawals can carry significant long-term consequences. Funds taken from tax-advantaged retirement accounts lose the opportunity to compound over years, and participants could face taxes or penalties depending on the circumstances.

Nonetheless, Vanguard’s report also found that overall retirement balances continue to increase.

In 2025, strong market performance contributed to substantial gains, with the average account balance rising 13% and the median balance increasing 16% compared to the end of 2024. Nearly half (45%) of retirement plan participants also increased their contribution rate last year.

“Overall, participants remained resilient and stayed focused on their long-term financial goals throughout 2025,” the report states.

Prioritising retirement savings from an early age remains critical to long-term financial health. This includes building emergency savings, maximising retirement contribution benefits and understanding the long-term implications of early withdrawals.

The World Economic Forum’s Financial Education Hub aims to provide accessible, research-backed resources that empower individuals and institutional users to make informed financial decisions.

The platform brings together insights, tools and best practices to help users navigate complex financial choices, from budgeting and emergency savings to investing and retirement planning. This includes providing access to financial literacy and education programmes ranging from the National Public Radio’s Planet Money Summer School in the United States to Money Africa in Nigeria.

To learn more, check out the Hub here.