The stock market did well in 2025. Retirement balances hit new highs. And more Americans than ever dipped into their 401(k)s anyway.

What the Numbers Show

Two reports dropped Wednesday that tell the same story from opposite directions. Fidelity, the country's largest 401(k) provider, found the average balance climbed 11% last year to $146,400 — the third straight year of double-digit growth. In the same breath, the data showed 2.7% of Fidelity participants took a hardship withdrawal in 2025, up from 2.5% in 2024.

Vanguard's numbers tell a sharper story. Among its plan members, 6% took hardship withdrawals in 2025 — a record high, up from 4.8% in 2024 and roughly triple the pre-pandemic average of about 2%.

Why People Are Doing It

The top reasons workers cite: personal debt (24%), recurring bills (21%), unexpected expenses (19%), and medical costs (18%). Credit card balances nationally have crossed $1 trillion, and delinquency rates are climbing — especially among lower-income households.

Part of the increase also reflects looser rules. The SECURE 2.0 Act, passed in 2022, lets workers pull up to $1,000 penalty-free for emergencies. That made it easier to tap retirement savings — and more people are doing it.

What It Actually Costs You

Here's the part that stings. A hardship withdrawal isn't just money out of your account today. It's also decades of compounding growth you'll never get back. Workers who take these withdrawals still owe income taxes on the amount, and typically face a 10% penalty if they're under 59½.

Financial researchers call this "leakage" — and it disproportionately hits lower-income workers who often have their 401(k) as their only financial cushion.

The dual trend — record balances alongside record withdrawals — suggests something important: a lot of Americans are building retirement wealth on paper while treading water in real life.