New data shows financial pressures could prompt more savers to tap into retirement accounts in the first half of 2026, potentially locking in losses in the early weeks of the Iran war.
The average 401(k) balance fell 4% to $141,000 amid severe market volatility earlier this year, according to first-quarter data released Thursday by Fidelity Investments, the nation’s largest provider of 401(k) savings plans.
The average balance in individual retirement accounts also fell 4% to $131,380 in the first quarter, according to Fidelity research.
Kirsten Hunter Peterson, vice president of workplace thought leadership at Fidelity Investments, said the decline was due to a decline in stock prices due to the outbreak of the Iran war. “Fortunately, a few months later, we are heading in a much better direction,” he said, referring to recent market highs.
After the US and Israel attacked Iran on February 28, the S&P 500 fell 5.1% in March, its worst monthly performance since 2022. The Dow Jones Industrial Average fell 5.4%, ending a 10-month winning streak. The Nasdaq fell 4.8%.
The market has since recovered from its previous decline. As of Wednesday’s close, the Dow Jones Industrial Average was up about 5.3% since the beginning of the year, the S&P 500 was up nearly 10% and the Nasdaq Composite Index was up 14.8%.
More workers are withdrawing money from their 401(k)
But more savers are turning to accounts to secure cash during this time, which experts say is a sign of underlying financial stress.
According to Fidelity, the percentage of workers with outstanding loans at the end of the first quarter of 2026 was 19.2%, up slightly from 18.8% in the same period last year. About 2.4% of workers took out new loans from their 401(k) in the first quarter, up from 2.3% in 2025.
The percentage of workers who experienced hardship withdrawals (compiled separately) also rose from 2.3% to 2.5% year over year, according to Fidelity’s research. The IRS says you can make a hardship withdrawal from a retirement plan without paying an early withdrawal penalty due to “urgent and substantial financial need.”
Many households are finding themselves in dire straits as they face soaring prices for essential goods such as food and gasoline due to the Iran war. As a result, consumers have less room in their budgets for unexpected expenses and emergencies, experts say.
Fidelity’s Hunter Peterson said that in most cases, workers take less than $2,000 in hardship withdrawals, which is “not that significant.” However, some companies have multiple difficult exits per year, indicating a more precarious financial situation. “These are the savers we want to monitor,” Hunter Peterson said.
Douglas Bonepers, a certified financial planner and president and founder of New York City wealth management firm Born Fied Wealth, says exiting a 401(k) from a difficult situation should be a last resort. Early withdrawals can result in taxes and a 10% penalty, but “the long-term compounding losses are even greater,” he said.
“The trend in 401(k) withdrawals…reflects broader pressures across household finances as inflation and rising costs of living continue to weigh on consumers,” said Bone Perth, a member of CNBC’s Financial Advisors Council.
What’s more, financial advisors say that withdrawing money during a market downturn can make it harder to recover losses in the long run.
Bonepers said the households best able to weather sudden affordability challenges are those with even modest emergency cushions in place. If your monthly cash flow is tight, you should put a small amount, such as $25 to $50 a month, into a high-yield savings account as a buffer before cutting your retirement savings, he said.
Meanwhile, Fidelity said the majority of retirement savers continued to make contributions in the first quarter, thanks to features such as auto-escalation, which automatically increases employees’ savings rates each year.
The average 401(k) contribution rate, which includes employer and employee contributions, rose to 14.4%, an all-time high and just shy of Fidelity’s recommended savings rate of 15%.
“While it may be tempting to make changes to retirement savings during market volatility, it is positive for participants to continue contributing. This approach will ultimately strengthen results as retirement approaches,” Sharon Brovelli, Fidelity’s president of workplace investments, said in a statement.
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