Fidelity report shows 401(k) balances decline as hardship withdrawals rise

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Fidelity 401(k) balances decline

Highlights

Fidelity Investments reports average 401(k) balances fell 4% to $141,000 and IRA balances dropped 4% to $131,380 in Q1 2026, citing market volatility tied to the Iran war.
The percentage of workers with an outstanding 401(k) loan rose to 19.2% by the end of Q1 2026, and hardship withdrawals increased to 2.5%, signaling heightened financial stress.
Rising prices for essentials and ongoing inflation are driving more employees to access retirement funds for short-term needs, raising long-term savings risk.

First-quarter retirement data and withdrawal trends

As reported by CNBC, average 401(k) balances fall 4% in the first quarter of 2026 to $141,000, while average individual retirement account balances also decline 4% to $131,380. The company links the drop to severe market volatility tied to the Iran war, which triggers a stock selloff early in the year.

Fidelity says 19.2% of workers have an outstanding 401(k) loan at the end of the first quarter, up from 18.8% a year earlier. About 2.4% of workers take out a new 401(k) loan in the quarter, compared with 2.3% in 2025, while the share taking a hardship withdrawal rises to 2.5% from 2.3%.

Kirsten Hunter Peterson, vice president of workplace thought leadership at Fidelity Investments, says market conditions improve in recent months after the earlier volatility. She also says most hardship withdrawals remain below $2,000, but some savers are taking more than one in a year, a sign of a more fragile financial position.

Household budget pressure and long-term savings risks

Higher prices for essentials such as groceries and gas leave many households with less room to absorb emergencies, pushing some workers to tap retirement savings for near-term cash needs. Under IRS rules, a hardship withdrawal can be taken without an early withdrawal penalty for an immediate and heavy financial need, but it can still weaken long-term retirement outcomes.

Douglas Boneparth, president and founder of Bone Fide Wealth in New York City, says a 401(k) hardship withdrawal should be a last resort because early withdrawals may trigger taxes and a 10% penalty. He says the larger risk is the loss of long-term compounding, especially when money is pulled from accounts during a market downturn.

Boneparth says the increase in 401(k) withdrawals reflects wider pressure across household finances as inflation and elevated living costs continue to squeeze consumers. He adds that households with even a modest emergency fund are better placed to handle sudden affordability shocks, and that workers with tight cash flow may benefit from directing small monthly amounts into a high-yield savings account before cutting retirement contributions.

Dollar Tree’s raised fiscal 2026 profit forecast highlighted how rising living costs are reshaping consumer behavior, with more shoppers prioritizing value and affordable essentials. In our earlier coverage, we also noted that inflation pressure across energy, transport, and packaging was pushing producers toward price increases and other cost-saving steps—signals of continued strain on household budgets.

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