If you glance at the latest data on American retirement accounts, you might find yourself feeling surprisingly optimistic. On paper, we are saving more than ever before. But if you take a closer look, a more complicated story emerges—one where inflation and daily living costs are forcing a growing number of people to tap into their golden years early.
According to Vanguard’s annual “How America Saves” report, we are living in a "tale of two retirements." While total balances have reached historic highs, an increasing number of Americans are treating their retirement plans as temporary life rafts.
The Good News: Nest Eggs Have Never Been Bigger
Let's start with the positive. Thanks to a strong bull market over the last few years and smarter retirement plan designs, account balances have surged.
Record-High Balances: In 2025, the average retirement balance hit a record $167,970, while the median balance jumped to $44,115 (up significantly from $141,542 and $35,345 in 2021).
The Power of Auto-Enrollment: More employers are automatically enrolling workers into 401(k) plans. This friction-free setup has boosted overall plan participation to a staggering 86%, compared to just 65% a quarter-century ago.
Bigger Company Matches: Employers are stepping up, too. The average employer-matching contribution has risen to 4.7%, giving workers an extra boost in long-term wealth accumulation.
The Flip Side: The Rise of Hardship Withdrawals
Despite these massive savings milestones, everyday affordability pressures—driven by years of stubbornly high inflation—are clearly taking a toll.
Vanguard found that 6% of plan participants made a hardship withdrawal in 2025. To put that in perspective, that is up from 5% in 2024, and a massive jump from just 2% in 2021.
Why Are People Dipping In?
When life gets expensive, people go where the money is. The report highlighted the top reasons Americans are pulling funds out early:
Avoiding home foreclosure or eviction
Paying off medical bills
Covering tuition expenses
Funding major home repairs
The Real Danger: Treating a 401(k) Like an Emergency Fund
On the surface, a small withdrawal might not seem like a big deal. The median hardship withdrawal last year was a relatively modest $1,900. Vanguard notes that taking one or two small distributions over a 30- to 40-year career is unlikely to derail your retirement readiness.
The alarming trend: Nearly half of the participants who made a hardship withdrawal took multiple distributions.
When you repeatedly dip into your retirement account, you aren't just taking out $1,900—you are stealing from your future self. You lose out on the massive power of compound interest, and you potentially trigger taxes and penalties, making it incredibly difficult to catch back up.
Regulatory changes and digital plan management have made accessing this money easier than ever. But just because you can withdraw it seamlessly doesn't mean you should.
Striking a Balance
The ultimate takeaway from Vanguard's report is clear: the American retirement system is doing a fantastic job of helping us accumulate wealth, but macro-economic pressures are testing our financial resilience.
As Lauren Valente, managing director of workplace solutions at Vanguard, beautifully summarized:
"Continuing to strengthen the system means helping Americans manage short-term financial pressures while staying on track for long-term retirement security."
If you find yourself eyeing your retirement account to pay for an immediate emergency, look for alternative routes first. Building even a tiny, separate emergency fund can be the barrier that protects your future retirement from the pressures of today.