U.S. retirement accounts reached record highs in the second quarter, but mounting use of those savings for everyday needs suggests many households remain financially stretched, according to data released Thursday by Fidelity Investments. The figures show markets and steady contributions helped balances recover, even as more workers borrow from or withdraw money out of retirement plans.
Fidelity, the country’s largest 401(k) provider, reported meaningful year-over-year gains for both workplace plans and individual retirement accounts, while also flagging higher rates of loans and hardship withdrawals.
Records on the books, pressure at the margins
The average balance in a 401(k) climbed to about $155,800 in the quarter — roughly a 13.1% increase from a year earlier. Average IRA holdings rose as well, to roughly $144,523, up about 10% year over year.
Those gains were driven in part by firmer equity markets. As of Wednesday’s close, the Dow Jones Industrial Average was roughly 10% higher for the year, while the S&P 500 and Nasdaq Composite each advanced about 12%, following a volatile stretch tied to earlier geopolitical tensions.
Retirement contributions remained resilient. Fidelity found the combined employer-and-employee contribution rate averaged 14.4% — just under the firm’s typical 15% savings target — a sign that many savers kept putting money aside even as prices rose for essentials.
Savers tapping accounts to cover costs
Still, another trend stood out: more participants are using retirement plans to meet near-term needs. The share of workers carrying an outstanding 401(k) loan ticked up to about 19.5%, and roughly 2.8% of workers initiated a new loan in the quarter.
Hardship withdrawals also inched higher, rising to 3% from 2.6% year over year. Under IRS rules, participants can take a hardship withdrawal without the usual early-withdrawal penalty if they face an “immediate and heavy financial need,” such as medical bills, eviction or foreclosure.
Financial planners say those moves reflect the squeeze many households feel as everyday costs rise faster than incomes for some workers. “When living expenses climb and paychecks don’t keep up, people often turn to the most accessible source of cash — and that can be a retirement account,” said Cathy Curtis, a certified financial planner in Oakland, California.
- Average 401(k): $155,800 (up 13.1% year over year)
- Average IRA: $144,523 (up 10% year over year)
- Average contribution rate: 14.4% (employer + employee)
- Workers with outstanding 401(k) loans: 19.5%
- New 401(k) loans in Q2: 2.8% of workers
- Hardship withdrawals: 3% of workers (up from 2.6%)
Fidelity’s vice president of thought leadership, Mike Shamrell, noted that the combination of market recovery and steady savings explains much of the balance rebound. But he and other experts caution that tapping retirement funds now can have long-term costs.
What this means for retirement security
Borrowing or withdrawing from a retirement plan erodes the long-term benefit of compound growth, advisers warn. Beyond the numerical loss of future returns, there’s a behavioral risk: once someone draws on these accounts for day-to-day expenses, they may be more likely to repeat that behavior.
“When retirement money becomes a go-to source for cash flow, it becomes harder to rebuild,” Curtis said. That pattern can widen a gap between where savers are and where they need to be at retirement age.
Economists point to persistent inflation and rising costs for necessities as central drivers of these decisions. “Inflation remains a top problem for households, and affordability pressures are compounding that strain,” said Heather Long, chief economist at Navy Federal Credit Union.
For readers, the takeaway is straightforward: account balances can look healthy at a glance, but increased borrowing and hardship withdrawals are warning signs of fragility beneath the surface. Preserving retirement savings now can matter greatly for financial security decades from today.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.