Why The Next Financial Crash Could Target Your Retirement Savings First

The early months of 2026 have proven rocky for the U.S. economy. The stock market has seen drastic swings, the GDP is growing at a slower rate than expected, and a sizable U.S. bank failed in January. While there's still time to see a correction in 2026, experts are predicting a financial crash in the near future and have some grim predictions for the U.S. dollar. Should a crash occur, many Americans' retirement savings may be at risk of being seized by Wall Street.

Having your assets seized by a larger institution may sound dystopian, but the Uniform Commercial Code (UCC) — a set of laws that governs banking and transactions — makes it a possibility. It's a fairly common practice for financial institutions to leverage their clients' assets as collateral to secure loans from other business entities; the 2008 financial crash was largely caused by institutions exhibiting a similar behavior with mortgages.

The UCC dictates that, if an institution offering the collateral fails, its creditors could then lay claim to that collateral to recoup their losses. This is because, in many cases, individuals who invest in stocks or bonds don't actually own them. Investors are afforded many of the same benefits of outright ownership, but the bank or brokerage firm still manages the asset. So, if the majority of the wealth you're building for retirement is invested into the market — a practice many experts recommend — there is a possibility that another party could be legally entitled to those assets in the event of a market crash.

Despite the scary possibility of losing your savings, not all retirement investors are at risk. The U.S. Securities and Exchange Commission (SEC), which oversees investment markets, only permits financial institutions to use customer assets held in margin accounts as collateral. Margin trading is a form of investing in which individuals borrow money from their broker against their assets to purchase more securities and requires a specialized account. Typically, 401(k) and IRA accounts do not have these features. However, the practice grew in popularity among everyday investors during the COVID-19 pandemic.

There are a number of ways retirees can protect themselves from a recession, but the thought of having your retirement savings seized can be unsettling. To protect your assets, individuals should be wary if they are trading on margin. Generally, margin trading is not ideal for people approaching retirement due to its volatility. The Securities Investor Protection Corporation (SIPC) does insure margin accounts, but it can take months for protections to kick in after a broker's bankruptcy. So, even if you could recoup some of your losses after an institution fails, you could still wind up in a tight spot financially in the immediate aftermath of a bank or brokerage firm's closure.  Moreover, the SIPC's protection can be pretty tenuous even in more stable financial eras, so it might not make for much of a safety net during a full-on market crash.