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- Stocks have posted double-digit annual returns since 2023, largely on the back of euphoria over artificial intelligence.
- The stock surge has led to a “wealth effect” that has helped accelerate retirements among older workers, economists said.
- Their participation in the labor force has been “collapsing” since the summer of 2024, Bank of America economists wrote.
- A downturn in stocks poses financial risks for these new retirees, and would threaten the broader job market and economy.
Thomas Barwick | Digitalvision | Getty Images
The stock market boom seems to be fueling a wave of retirements.
Workers age 55 and older are leaving the labor force at a rapid pace, government data shows, a trend that coincides with ballooning stock wealth fueled by euphoria over artificial intelligence.
The retirement surge among these workers is attributable in part to a “wealth effect,” economists said: Workers near traditional retirement age have seen their stock portfolios swell and feel rich enough to finally leave their 9-to-5.
In a research note last month, Bank of America economists referred to the trend as a “stock-fueled retirement party.”
“Labor force participation is collapsing among older workers,” wrote the economists, Stephen Juneau and Aditya Bhave. “We think the strength of the equity market is partly to blame.”
Workforce exits among older workers have helped keep unemployment relatively low in recent years, economists said. Their departures help make space for job seekers and new entrants to the labor market, an important factor in an otherwise frozen job market, they said.
However, if AI optimism wanes and the stock market sours, it could mean bad news for these recent retirees, the U.S. labor market and the economy, economists said.
A ‘favorable’ financial position
Fiordaliso | Moment | Getty Images
The labor force includes people who have a job and unemployed people who are looking for work. The labor force participation rate is the percentage of people who are in the labor force.
Participation among workers 55 years and older initially declined sharply in the early days of the Covid-19 pandemic, as it did for the broader pool of workers, too.
However, labor force participation among older workers “never recovered” after the pandemic, Bank of America economists wrote. It stayed “range-bound” until the summer of 2024, but “has taken another big leg down since then,” they wrote.
Since August 2024, the labor force participation rate for workers age 55 and older has declined from 38.6% to 37.2%, according to Bureau of Labor Statistics data.
Meanwhile, the S&P 500 stock index yielded a string of double-digit returns for investors in recent years: 26% in 2023, 25% in 2024 and 18% in 2025, including reinvested dividends, according to data compiled by Aswath Damodaran, a finance professor at New York University.
The index is up about 16% so far in 2026, as of early Monday.
The resulting wealth surge, including in people’s retirement accounts like 401(k) plans, likely made the choice to retire an easier one for many people, said Thomas Ryan, a North America economist at Capital Economics.
The net worth of households and nonprofits increased by $12.8 trillion, to $195.9 trillion, in the second quarter of 2026, driven primarily by strong stock returns, according to Federal Reserve data. That’s by far the largest quarterly wealth increase on record since 2000, when the central bank started tracking the statistic, according to a CNBC analysis of Fed data.
“It puts people in a position where they can retire early, because they’re in a favorable [financial] position,” Ryan said.
Of course, near-retirees may be unlikely to be fully invested in stocks.
Financial advisors generally recommend shifting to a more conservative asset allocation leading up to and in retirement, to avoid subjecting one’s whole nest egg to the volatility of the stock market.
However, the typical 65-year-old might still have a relatively large allocation to stocks — perhaps 50%, for example, with the remainder in assets like bonds and cash. Stocks are the traditional growth engine of an investment portfolio, and provide a hedge against the rising cost of living over a retirement that may last many decades.
“If people weren’t feeling confident enough that they could afford to retire, they wouldn’t — and we’d see a very different story in the data,” said Michael Reid, head of U.S. economics at the Royal Bank of Canada.
Wealth effect compounds demographics
That said, the wealth effect isn’t the only factor pushing down labor force participation among older workers.
The wealth effect compounds a broader demographic trend, economists said: A record number of people are reaching traditional retirement age, as baby boomers turn 65 en masse.
In this sense, stock wealth is accelerating these workers’ shift into retirement, economists said.
The labor force participation trend is also likely partly attributable to early retirement packages, including those offered to federal workers by the so-called Department of Government Efficiency, or DOGE, and companies like Microsoft, which this year offered its first-ever retirement program to U.S. workers, Reid said.
What if there’s a stock drawdown?
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Older workers may be reluctant to withdraw from the labor force — and may even try to “unretire“ — if stocks start to falter, economists said.
“What happens if we get this long-expected drawdown in the equity market, if we’re in an AI bubble now and it reverses at some point?” Ryan said. “You’d potentially get some people at the margin who feel their 401(k) is in a good position now at 56, 57 years old who might come back to the labor force.”
Of course, that outcome isn’t a given.
Stocks have defied gravity, even in the face of headwinds like the Iran war.
AI has been a “powerful driver, as companies spend heavily on computing power, data centers and infrastructure, which is supporting technology, manufacturing, energy and industrials,” Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, wrote in a note Wednesday.
If people weren’t feeling confident enough that they could afford to retire, they wouldn’t — and we’d see a very different story in the data.Michael Reidhead of U.S. economics at the Royal Bank of Canada
While stocks have room to run, they face pressure heading into 2027 from higher bond yields, elevated oil prices, policy uncertainty and strain among lower-income consumers, Shalett wrote.
“The risks are becoming harder to ignore,” she wrote.
Financially, a stock drawdown poses risks for retirees — especially those early in retirement who must withdraw money from their stock portfolio for income — due to so-called “sequence of returns risk.”
That said, retirees can generally sidestep the danger by withdrawing from assets like bonds or cash for income when the stock side of their portfolio takes a nosedive, according to financial advisors.
“If you plan and set yourself up right, it shouldn’t be much of a worry,” Reid said.
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But an end to the boom-fueled retirement party could pose a risk to the labor market and economy, economists said.
If older workers delayed retirement amid a negative wealth effect, there would be less churn in the job market, which could make it harder for unemployed workers and other job seekers to land a new gig, economists said.
All else equal, that could put upward pressure on the unemployment rate — which, at 4.1%, is currently at a relatively low level in historical terms, economists said.
