Perspectives : Markets & Economy | October 23, 2026

Markets to Mindsets: When the biggest retirement risks aren't in the market

What disciplined investing can—and can’t—tell plan sponsors about retirement readiness

Markets may dominate the economic headlines. But for many employees, the greater risks to retirement readiness are closer to home: debt payments, thin emergency savings, and too little room in the monthly budget.

The economy has remained resilient, and artificial intelligence could support long-term growth. Yet a strong economic outlook does not necessarily translate into greater financial security for every household.

Slower hiring and uneven wage gains may deepen that disconnect. But employment conditions are only part of the picture. Debt, borrowing costs, and low savings limit what employees can do with each paycheck. Vanguard research offers insight into how these pressures intersect with retirement decisions—and where plan sponsors may be able to help.

AI could reshape work—and financial decisions

According to Vanguard research, AI could support long-term growth by raising productivity and changing how work gets done.^1,2 An analysis of approximately 800 occupations found that 25% of current working hours are spent on tasks that could be automated. For roughly 4 out of 5 occupations, AI is expected to bring a mix of innovation and automation rather than eliminate the job.³

Even as the long-term outlook is favorable, the transition to greater use of AI could create near-term uncertainty. Employees adapting to new skills, responsibilities, or career paths may place greater priority on cash flow and financial security.

The portfolio may not be the biggest problem

Most Vanguard participants have remained committed to their investment strategies, even during periods of market volatility.⁴ Plan design—particularly broad use of target-date funds—helps reinforce that behavior. But staying invested cannot fully offset financial pressure elsewhere in the household budget.

Household budgets can undermine retirement progress

U.S. households carried nearly $19 trillion in debt,⁵ compared with roughly $14 trillion in defined-contribution retirement assets.⁶ For many employees, the challenge is not whether to save but how to divide the next available dollar among debt, emergency savings, and retirement.

That trade-off is not always handled efficiently. Fifty-three percent of 401(k) participants carry revolving credit card balances. Of that group, 60% contribute more than necessary to receive their full employer match.⁷ Others make extra payments on lower-cost debt while contributing too little to receive the full match.

Emergency savings can give employees more room to make better choices, yet 45% of participants surveyed had less than $2,000 set aside.⁸ Participants with at least $2,000 in emergency savings contributed more to their 401(k) accounts and took fewer withdrawals, both while employed and after leaving their jobs.⁹

What plan sponsors can do

Plan data can help sponsors see where household financial pressure is affecting retirement behavior. Rising hardship withdrawals, plan loans, contribution reductions, and missed matches can reveal where employees may need support.

Sponsors can then focus on practical interventions, such as emergency savings solutions, guidance on high-interest debt, and communications delivered when employees are making financial decisions. Tracking withdrawals, loans, contributions, and match capture over time can help show whether that support is working.

Conclusion

Employees have largely stayed disciplined through market uncertainty. The harder challenge may be finding room to save amid debt, limited emergency reserves, and competing demands on each paycheck. For plan sponsors, improving retirement readiness may require looking beyond the portfolio to the financial pressures shaping employee decisions.