Workers across the United States saved more of their paychecks into retirement accounts than at any point on record, yet the average 401(k) balance still fell roughly 4% to about $141,000. The disconnect between record-high contribution rates and shrinking balances raises a pointed question: what is draining accounts even as deposits climb? Part of the answer lies in how easily participants can tap their own savings through loans and withdrawals, a dynamic that federal watchdogs have begun to scrutinize more closely.
Record saving rates could not offset 401(k) balance erosion
The gap between rising contributions and falling balances points to forces working against long-term growth. Market volatility plays a role, but so does the structural ease with which participants can borrow from their own accounts. Under federal rules, a 401(k) participant can take a loan of up to half the vested balance or $50,000, whichever is less, with repayment generally due within five years, according to the IRS guidance. Failure to repay on schedule converts the outstanding amount into a taxable distribution, often triggering income tax plus a 10% early-withdrawal penalty for those under age 59 and a half.
That penalty structure is designed to discourage premature access. But the friction it creates depends heavily on plan design. Most defined contribution plans do not require a spouse to sign off before a participant takes a loan or withdrawal. A report from the U.S. Government Accountability Office, designated GAO-26-107536, found that this absence of spousal-consent requirements is the norm rather than the exception across the defined contribution system. Without that extra step, the path from financial stress to account drawdown is short.
Leakage does not occur only through formal loans. Hardship withdrawals, cash-outs when changing jobs, and distributions taken before retirement age all chip away at balances. When markets are choppy, the damage compounds: assets are sold at lower prices to fund withdrawals, and the money is no longer invested when prices eventually recover. Even when participants continue contributing at record rates, repeated dips into savings can more than offset new deposits and market gains.
Spousal consent rules and the friction that protects balances
The GAO report, which cites empirical research from the Employee Benefit Research Institute and the Investment Company Institute, provides a framework for understanding why some plans lose less ground than others during periods of economic pressure. Plans that do impose spousal-consent requirements add a procedural barrier. A participant who must obtain a spouse’s written agreement before borrowing faces a delay and a conversation that can discourage impulsive withdrawals. The hypothesis is straightforward: added friction reduces borrowing frequency, and lower borrowing frequency preserves balances.
No publicly available dataset isolates the exact effect of spousal consent on loan origination volumes across the full 401(k) universe. The GAO report acknowledges trade-offs in mandating such requirements, noting that while they could protect household retirement wealth, they also limit individual access during genuine emergencies. For a worker facing a medical bill or housing cost spike, a consent requirement could delay needed funds by days or weeks.
Still, the pattern is consistent with basic behavioral economics. Small barriers reduce action rates. When the barrier is a legal form requiring another person’s signature, the reduction can be meaningful. Plans that kept these rules in place may have experienced smaller average balance declines precisely because fewer participants completed the loan process. Conversely, plans that allow participants to request loans online in a few clicks, without any third-party sign-off, effectively transform retirement accounts into hybrid emergency funds.
Plan sponsors also face design choices beyond consent rules. They can limit the number of outstanding loans, set minimum loan amounts, or restrict hardship withdrawals to narrowly defined circumstances. Each of these decisions changes how often participants view their retirement savings as available cash. The more a plan resembles a checking account, the more likely it is that workers will treat it that way.
Open questions about 401(k) leakage and what savers should watch
Several gaps in the evidence prevent a definitive conclusion. No federal agency has published participant-level data showing how many individual accounts experience repeated loans or hardship withdrawals over a working lifetime. The GAO report calls for better data collection on leakage, arguing that policymakers cannot accurately weigh reforms without clearer information on how often and why balances are tapped.
Researchers still debate how much of the typical worker’s shortfall at retirement stems from inadequate contributions versus leakage along the way. Record contribution rates suggest that saving behavior has improved, at least on paper. Yet if a meaningful share of those contributions is later withdrawn, the apparent progress may overstate how much money will actually be available in retirement.
For individual savers, the policy debate translates into a handful of practical questions. Workers can review their own plan’s rules on loans and withdrawals, paying close attention to how many loans are allowed, what counts as a hardship, and whether a spouse must consent. Couples may want to agree in advance on when tapping retirement savings is acceptable, rather than waiting until a crisis forces a rushed decision.
Financial planners often recommend building a separate emergency fund precisely so that retirement accounts remain a last resort. While that advice can be hard to follow for households living paycheck to paycheck, even a modest cash buffer can reduce the temptation to borrow from a 401(k). The less frequently workers raid their accounts, the more likely it is that today’s record contribution rates will eventually show up as higher balances when retirement finally arrives.
