During last week’s State of the Union address, President Donald Trump took a triumphant step by launching a new 401(k) plan for workers who lack employer-sponsored plans. But there’s a slight problem with the proposal: Some people are dipping into their savings just to make ends meet.
The proposal, which would provide a federal match of up to $1,000 per year to workers who don’t have access to employer-sponsored 401(k) matching plans, ignores a key feature of American life: Who even has $1,000 to invest?
Nearly a quarter of American households live paycheck to paycheck, according to Bank of America, and a growing number of workers are raiding their 401(k) accounts to make ends meet. A new report from Vanguard titled “How America Can Save 2026” found that participants in its 401(k) plans were withdrawing money from their accounts at a record high, rising to 6% last year from 5% the year before.
Even though Trump touted a “booming” economy in his State of the Union address, many Americans are still feeling the economic burn. Middle-class households now have a smaller share of income, while the top 1% have doubled their share of the economic pie, with nearly $54 trillion in total wealth, according to the Federal Reserve. Many Americans feel trapped when it comes to saving for retirement. Even after decades of saving, families still haven’t broken out of the middle class. What’s more, in some U.S. states, a six-figure salary is no longer even considered upper class, as downward pressures like inflation unsettle American families.
K-shaped retirement savings
Vanguard notes that part of the reason more people are choosing to retire is because it’s now easier to do so. With the launch of SECURE 2.0, users can self-certify their compliance with IRS requirements, eliminating paperwork and increasing certification speed. But the company noted that only 3% of plans offer self-certification provisions.
Retirement data shows a growing K-shaped retirement savings environment, with differences between high-income savers and low-income savers. While more and more participants are emptying their savings, more and more are becoming millionaires in retirement. According to Fidelity Investment, the number of 401(k) millionaires increased to 665,000 in the fourth quarter of 2025, an increase of more than 10,000 from the previous quarter market observation.
However, these seven-figure savings are limited to participants who have been in the game for a longer period of time. As Fidelity points out, most millionaire account holders have been saving for 25 years or more. Millennials account for only 4% of these million-dollar balances.
