The Retirement Machine: AI, high earners, and the risk to global stock markets

Every month, tens of millions of Americans have money quietly swept from their paycheques and invested in stocks. Most of them barely notice. But in aggregate, this mechanism — the 401(k) system and its sister retirement vehicles — has become one of the most powerful structural forces in financial markets. It has become a large, systematic source of equity demand, running in the background regardless of the headlines.

What could put this US equity “prop” at risk? Shifting demography could play a part, as savers retire and the balance shifts from contributions to withdrawals, but other factors pose a more immediate risk. One is AI and its potential impact on high earners.

In their AI-boom scenario, [https://mybrand.schroders.com/m/6e1a31a29a37c4ed/original/AI-economic-scenarios-2026-revolutionary-growth-or-recessionary-bubble.pdf] our economists model unemployment rising to 10% as workers are displaced by technology. Importantly, whereas past technological revolutions have displaced lower earners, this time higher-earning white-collar workers are in the firing line. And they are the ones who disproportionately contribute to the monthly pension flows into equity markets. This article puts numbers on just how material a risk this is. Spoiler alert: it’s big.

THE US PENSION SYSTEM IS ENORMOUS

Americans have $49.1 trillion [https://www.icifactbook.org/pdf/2026-factbook.pdf] earmarked for retirement as of late 2025. To put that in context, the US retirement pot is nearly as big as the $59.6 trillion US equity market and is bigger than all non-US developed and emerging stock markets combined (based on MSCI US, World ex US and emerging market equity indices).

The biggest slice — $19.2 trillion — sits in individual retirement accounts (IRAs). The next largest is the employer-sponsored defined contribution (DC) world, of which 401(k) plans are the dominant form at $10.1 trillion, with another $4.1 trillion in other kinds of DC plan. Add it all together and the DC-plus-IRA complex controls around $33 trillion. It is broadly the same size as the non-US global equity market.

Figure 1: The US retirement system is huge: DC plans + IRAs are worth the same as all non-US developed and emerging stock markets combined

Market size, $ trillions Equity market sizes are market capitalisations of MSCI indices. As at end 2025. Source: Investment Company Institute factbook, LSEG Datastream, MSCI, Schroders

STEADY FLOW OF EQUITY DEMAND

The stock of assets matters but the flow matters more: contributions arriving month after month, year after year, regardless of market conditions. In 2024 alone, DC plans and IRAs took in an estimated combined $980 billion of gross contributions (excluding rollovers from other kinds of retirement savings vehicle, to capture genuine contributions).

This money goes mostly straight into equities, either directly in equity funds, or via the equity portion of target-date funds. The (dollar-weighted) average allocation to equities across 401(k)s is 75%. [https://www.ebri.org/docs/default-source/pbriefs/ebri_ib_655_k-xsec-9apr26.pdf?sfvrsn=3039022f_2] Younger individuals have more, with those in their 20s having 90% on average but even those in their 60s still hold over 60%.

Assuming the 75% equity allocation also applies to new contributions, US DC plans and IRAs funnelled around $735 billion into global equity markets in 2024. Given the US weight in the global stock market and typical TDF allocations, 60-70% of that will have gone into US equities [https://www.morningstar.com/business/insights/research/tdf-landscape], translating into approximately $480 billion. DC and IRA pension accounts bought an estimated nearly half a trillion dollars of US equities in 2024.

To put this into context, net aggregate demand for US equities from other major investors plus nonfinancial companies themselves (via buybacks and M&A, net of share issuance) in 2024 was $1,373 billion. In terms of scale, estimated DC+IRA US equity buying was equivalent to roughly one-third of reported net demand from the other major investor groups and companies themselves in 2024 (Figure 2).

WHAT CONSTITUTES A “NORMAL” YEAR?

2024 was also a year when other investor types were buying. 2022 provides a contrasting example. It ushered in the transition from a world of low inflation, near-zero rates and abundant liquidity to one of high inflation, rapidly rising interest rates and much tougher conditions for both stocks and bonds. Household demand for individual US equities fell 76%, ETF buying fell 43%, and overseas investors pulled money out of US equities. Aside from companies buying back their own shares or being acquired, the only meaningful bid for US equities came from DC and IRA pensions. The market still fell by 20%. Without pensions’ stabilising source of demand, it could easily have been worse.

In more serious economic crises such as 2000-02, 2008 and 2020, companies also flipped from buying back their shares to issuing lots, to provide liquidity and bolster their balance sheets. It is not hard to envisage DC and IRA pension funds being the last remaining buyer in a future crisis.

This is not an apples-to-apples accounting comparison and it’s important to be clear that Figure 2 does not show a decomposition of demand. DC and IRA contributions are estimated gross buying flows, while the other rows show net buying after sales.

However, the question this article seeks to answer is: how consequential would it be for equities if the US experienced a rise in AI-linked unemployment among high earners which led to a fall in pension contributions. For that question it is gross pension flows which we need to focus on.

The logic is simple. Retirees also draw down income but those outflows are relatively independent[1] of the economic cycle. It is changes in gross contributions that ultimately drive changes in the net equity flow.

The counterfactual can never be known, but the scale and persistence of DC and IRA flows suggest they have been an important source of valuation support for US equities, especially during periods of market stress.

[1] We say “relatively independently” because the dominant driver of when someone retires is usually their age. However, in an AI-boom scenario where unemployment rises sharply, it is reasonable to expect that some people may retire early as an alternative to being made redundant. Others may seek to access their accumulated savings early to pay the bills when out of work. Both of these would accelerate outflows, amplifying the negative impulse on equity markets from the DC+IRA channel.

Figure 2: Persistent DC and IRA inflows have been a major structural bid for US equities Past performance is not a guide to the future and may not be repeated

2024 IRA contribution estimated. Calculations assume 75% of gross DC+IRA flows go into equities and 65% of that flow goes into US equities. Households refers to direct ownership only, avoiding any double counting with ETFs/mutual funds. The ETF/mutual fund categories largely offset each other and represent a shift in investor preferences. Source: BEA, Federal Reserve Economic Data (FRED), Federal Reserve Bank of St. Louis, IRS, Morningstar, Schroders

WHO DO THESE PENSION CONTRIBUTIONS COME FROM?

The retirement system is funded disproportionately by high earners and those working in particular industries (Figure 3). DC plan participation runs at 80% in information industries and 87% in financial activities versus 47% in construction and just 14% in leisure and hospitality. 95% of financial services workers have access to a DC plan and 92% of those take that up; 38% of leisure and hospitality have access and only 37% take it up. The pattern is clear: white-collar, knowledge-intensive industries have near-universal coverage and high participation; lower-wage service industries participate far less, some barely at all.

Figure 3: People working in higher-earning industries are far more likely to contribute to a DC pension plan than lower earners Past performance is not a guide to the future and may not be repeated

Data as of 2025. Note that, with the exception of employees in the educational services industry, very few individuals have access to a defined benefit (DB) plan. Only 1% of leisure & hospitality workers participate in a DB plan. Variation in DC participation rates is not explained by access to DB pensions as an alternative. Source: BLS, and Schroders

It is not only that higher earners are more likely to participate in a DC plan. They also contribute a higher percentage of their salary and are far more likely to max out, receive larger employer matches [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4847770], and make additional after-tax contributions when given the opportunity [https://workplace.vanguard.com/insights-and-research/report/how-america-saves-2026.html]. These additional contributions can allow individuals to save tens of thousands of dollars beyond the usual employee contribution limit.

Once pay is layered on top, the impact grows even wider. Contributions are typically a fixed percentage of pay, so a 10% contribution from someone earning $150,000 is three times the size of one from someone earning $50,000. Coverage, contribution behaviour and pay all push in the same direction.

The result is a highly concentrated contribution base. The Congressional Budget Office’s most recent comprehensive distributional analysis of retirement-related tax expenditures [https://www.cbo.gov/publication/57413] — the closest available proxy for the distribution of contribution dollars — found the highest-income quintile captured 63% of the tax benefits in 2019, against 1% for the bottom quintile. The tax-benefit share will overstate the contribution share to some extent because higher earners face higher marginal tax rates. Even so, this is broadly consistent with IRS data [https://www.irs.gov/pub/irs-soi/23in03ira.xlsx] which shows that 62% of contributions to IRAs in 2023 came from people earning over $100k a year. Only about 15% came from people earning what was then the median income of around $50k or less.

There is also direct evidence from within company plans. As Figure 4 shows, the best paid 20% of employees at a given firm have, on average, taken in 44% of employer contributions.

Figure 4: Employer contributions are concentrated among higher earners The chart shows the share of employer contributions accruing to workers, by within-plan income quintile. “Income” refers to a worker’s benefit eligible income that can qualify for employee or employer contributions (for example, subject to the benefit compensation limit, which was $330,000 in 2022). Results are participant-weighted among 8,479 plan-years between 2013 and 2022. Source: Are employers optimizing  their 401(k) match? Vanguard, Yale, MIT

Figure 4 gives a conservative lower anchor: the highest-paid 20% of workers within firms receive 44% of employer contributions. The CBO tax-benefit data provide an upper anchor, with the top income quintile receiving 63% of retirement-related tax benefits. Because tax benefits overstate contribution shares, I use 60% as a rough upper bound. Combining these with estimated contribution-flows into US equities suggests higher earners invested $210-287 billion in US equities via their DC and IRA plans in 2024 (Figure 5). Given the uncertainty, $200–300 billion is a plausible working range.

Figure 5: Higher earners invested an estimated $200-300 billion in US equities via their DC and IRA pensions in 2024 Source: BEA, CBO, Federal Reserve Economic Data (FRED), Federal Reserve Bank of St. Louis, IRS, MIT, Morningstar, Schroders, Vanguard, Yale.

The AI question

Historically, the jobs exposed to automation have been routine, physical or semi-skilled: assembly lines, data entry, call centres. The narrative was that knowledge workers — lawyers, analysts, engineers, doctors — were safe. This is where AI has the