401(k) Balances Surge 11% Despite Volatility
Average 401(k) balances rose 11% to $146,100 by year-end 2025, with many Americans reaching millionaire status despite market swings. This underscores the long-term benefits of staying invested during volatile periods, even as more Americans are entering retirement broke due to insufficient savings and debt.
The 11% surge in average 401(k) balances marks the third consecutive year of double-digit annual gains for retirement savers. This consistent growth is attributed not only to market performance but also to steady savings habits among participants. The S&P 500, for instance, saw a 16.9% advance in 2025, while the Nasdaq Composite surged over 20%. The number of people with over $1 million in their 401(k) accounts reached a record high of 665,000 by the end of 2025, a significant increase from 512,000 at the beginning of the year. The majority of these millionaires are Gen Xers, who make up 60.3% of the total, followed by baby boomers at 34.6%. On average, those reaching the million-dollar mark have been saving for about 25 years. Contribution rates remained strong throughout 2025, with a total average savings rate of 14.2%, which includes both employee and employer contributions. Nearly 40% of all workers increased their 401(k) contributions at some point during the year. Younger generations are showing particularly strong savings habits, with over 13% of Gen Z participants increasing their contribution rate in the final quarter of 2025. The IRS has also increased contribution limits for 2025, allowing individuals to save up to $23,500. Those aged 50 and over can contribute an additional $7,500 as a catch-up contribution. A special "super" catch-up provision for those aged 60 to 63 allows for an additional $11,250 in contributions for 2025. Despite the positive growth in retirement account balances, persistent inflation remains a significant concern for retirees. Rising costs for essentials like healthcare and housing can erode the purchasing power of savings over time. For the 12 months ending in January 2025, the Consumer Price Index for All Urban Consumers (CPI-U) increased by 3%. While balances have surged, a record number of Americans also took hardship withdrawals from their 401(k)s in 2025. Six percent of participants in plans administered by Vanguard made a hardship withdrawal, up from 4.8% in 2024 and significantly higher than the pre-pandemic average of about 2%. The leading reasons for these withdrawals included avoiding foreclosure or eviction and covering medical expenses.
