Is inflation finally forcing Americans to cut back 401(k) savings?

Is inflation finally forcing Americans to cut back 401(k) savings?

Key points

• The findings come from a report titled Stretched Thin: Where Americans Stand on Affordability, Retirement, and Social Security, published Oct.
• While 8% declined their saving rate and 2% halted contributing altogether, among Vanguard retirement savers, 45% rose their contribution rate in 2025, the firm stated.
• The study discovered average retirement savings rates dwindled between 2022 and 2024 for every group of earners except the top tier.
• "Across our platform, only 10.3% of participants decreased their contribution rate over the past 12 months, " remarked Kristen Andrews, a Fidelity spokesperson.
• But median contribution rates have ticked down slightly in the last few years, from a peak of 6.8% in 2023.

Is inflation finally forcing Americans to cut back 401(k) savings? Daniel de Visé USA TODAY. Trump signs TrumpIRA order to broaden access to retirement savings.

Trump signs executive order creating TrumpIRA.gov. It workers whose employers don't offer 401(k) intends can apply to enroll in a retirement plan.

American workers may be cutting back on 401(k) retirement contributions to cover rising living costs, a new report suggests.

In a TIAA survey, 43% of Americans remarked they have cut back on retirement contributions or ceased them entirely previously year to keep up with daily expenses. Only 7% remarked they have climbed retirement contributions previously 12 months.

More worrisome, perhaps, 12% of Americans remarked they have taken early withdrawals from retirement accounts to cover living costs, racking up penalties in the process.

For context, the findings come from a report titled Stretched Thin: Where Americans Stand on Affordability, Retirement, and Social Security, published Oct. 26 by TIAA. It draws from a July survey of 1, 000 adults.

Meanwhile, the survey suggests five years of cumulative inflation may be finally catching up with America's retirement savers. Consumer rates have risen almost 30% since the start of 2021.

One TIAA researcher drew a parallel between the current inflation arc and the COVID-19 pandemic, an episode that prompted hardship withdrawals from retirement intends. A temporary policy shift waived early withdrawal penalties in 2020.

"I think we are again in another acute situation, with inflation hitting us really hard, " Surya Kolluri, head of TIAA Institute, a research arm of the retirement services provider.

"And this time, the government has not given us permission without penalty to take out of 401(k)s, so people are doing the next best thing."

Notably, the next best thing, in this case, is to scale back contributions to a 401(k) account, diverting the funds toward more urgent needs, such as housing or health care.

"Honestly, it's a rational response, " Kolluri remarked. "Let's take the simple case of, 'I have to pay the mortgage, and I have to contribute to my retirement, and I'm in a pinch. I have no freedom on the one. I have lots of freedom on the other.'". Have 401(k) savings rates plateaued?

Since 401(k) contributions have generally been rising, the survey findings are surprising. The median Vanguard retirement saver contributed 6.6% of income to a 401(k) in 2025, up from 6.1% in 2020, the retirement plan provider reports.

And retirement savers are making hardship withdrawals at progressively higher rates. The share of Vanguard retirement savers taking withdrawals to cover urgent financial needs rose from 2% in 2020 to 6% in 2025.

As 401(k) participation is generally rising, as are average account balances, those signs of financial fragility often obtain overlooked.

But other recent reports have uncovered evidence that workers are struggling to save for retirement during a prolonged span of elevated inflation.

In practice, a 2025 report from Dayforce, the human capital management firm, identified that only top earners are increasing their retirement contributions from year to year.

Notably, the study discovered average retirement savings rates dwindled between 2022 and 2024 for every group of earners except the top tier. Among those earning $15, 000 to $50, 000, for example, the average retirement savings rate declined from 4.9% to 4.6% of income, less than half the savings rate for top earners. Vanguard, Fidelity report solid retirement savings rates.

Spokespeople for two top retirement plan providers, Vanguard and Fidelity, remarked they have not seen recent evidence of retirement savers pulling back on contribution rates.

"Across our platform, only 10.3% of participants decreased their contribution rate over the past 12 months, " remarked Kristen Andrews, a Fidelity spokesperson. "Only 1.5% stopped altogether."

Through the second quarter of 2026, Fidelity reports, total average 401(k) savings rates stood at a record level, a combined average employee and employer contribution rate of 14.4%.

While 8% declined their saving rate and 2% halted contributing altogether, among Vanguard retirement savers, 45% rose their contribution rate in 2025, the firm stated. Each company's data is limited to the retirement intends it administers.

While 19% stated they had halted making contributions, in the TIAA survey, 24% of Americans nationwide remarked they had cut back on retirement contributions previously year.

Eighty percent of Americans surveyed by TIAA remarked they see inflation as a threat to their retirement. Almost half stated they had taken one or more of these steps to cope with rising rates.

"We've spent decades not thinking about inflation, " Kolluri remarked, "but it's right in front of us, and we're learning to deal with it." Share your feedback to assist improve our site!

For now, is inflation finally forcing Americans to cut back 401(k) savings? Remains the part of the story worth watching, and further updates are likely as more details are confirmed.