A surging stock market is helping to fuel an unprecedented wave of retirements. Government data reveals that workers aged 55 and older are leaving the labor force at a rapid clip, a trend that has coincided with the massive wealth gains driven by the artificial intelligence boom. Economists at Bank of America dubbed this phenomenon the "stock-market-fueled retirement party" in a research note last month.
The surge in retirements among older workers is largely attributed to a "wealth effect," according to the economists. Workers nearing traditional retirement age see their stock portfolios ballooning, feel financially secure enough, and decide they can finally leave the nine-to-five grind behind. "Labor force participation among older workers is collapsing," economists Stephen Juneau and Aditya Bhave wrote. "We believe the strong stock market is part of the reason."
The economists noted that the exodus of older workers from the labor force in recent years has helped keep the unemployment rate relatively low. These departures free up space for job seekers and new labor market entrants, which is an important factor in an otherwise frozen hiring environment. However, they warned that if AI optimism fades and the stock market turns sour, it could spell bad news for these recent retirees, the U.S. labor market, and the broader economy.
Financially "in a good spot"
The labor force includes those who are employed and the unemployed who are actively seeking work. The participation rate measures the share of the population that is in the labor force. Participation among workers 55 and older tumbled during the early stages of the pandemic, as it did for all workers. But Bank of America economists wrote that the post-pandemic participation rate for older workers "never recovered." They noted the metric was "range-bound" until the summer of 2024, but "has since fallen off a cliff again."
According to data from the Bureau of Labor Statistics, the participation rate for workers 55 and older has slipped from 38.6% to 37.2% since August 2024. During the same period, the S&P 500 has delivered a string of double-digit returns for investors, according to data compiled by Aswath Damodaran, a finance professor at New York University. Including reinvested dividends, the index rose 26% in 2023, 25% in 2024, and 18% in 2025. As of Monday morning, the index is up about 16% in 2026.
Thomas Ryan, North America economist at Capital Economics, said the resulting surge in wealth—including retirement accounts like 401(k)s—has made the decision to retire easier for many. Federal Reserve data shows that household and nonprofit net worth climbed by $12.8 trillion to $195.9 trillion in the second quarter of 2026, driven primarily by strong stock market gains. According to a CNBC analysis of Fed data, this was the largest quarterly wealth increase on record since the Fed began tracking the statistic in 2000.
"It puts people in a position where they can retire early because they're financially in a good spot," Ryan said. Of course, those nearing retirement are unlikely to be fully invested in equities. Financial advisors typically recommend shifting toward more conservative asset allocations in the lead-up to and during retirement to shelter an entire nest egg from market volatility. Still, a typical 65-year-old might hold a relatively high percentage of their portfolio in stocks—perhaps 50%, with the rest in bonds and cash-like assets. Equities serve as the traditional growth engine of a portfolio and hedge against rising living costs over a retirement that could last decades.
"If people didn't feel confident enough that they could afford to retire, they wouldn't retire—and the data would tell a completely different story," said Michael Reid, U.S. economist at RBC.
Wealth effect amplifies demographic tides
But the wealth effect is not the only factor weighing on labor force participation among older workers. Economists say it is amplifying a broader demographic trend. A record number of people are reaching traditional retirement age: between 2024 and 2027, more than 4 million younger baby boomers are expected to turn 65 each year. Reid also noted that participation trends may be partly attributable to early retirement offers, including those extended to federal employees through the so-called Department of Government Efficiency (DOGE), as well as companies like Microsoft—which offered a retirement plan to its U.S. employees for the first time this year.
What if the stock market pulls back?
Economists say that if stocks start to weaken, older workers may be reluctant to leave the labor force and could even attempt to "unretire." "What happens if we get that long-awaited pullback, if we're in an AI bubble and at some point it reverses?" Ryan said. "You could see some marginal people who felt pretty good about their 401(k) at 56, 57, potentially re-entering the labor force."
That outcome, of course, is not inevitable. Despite headwinds like the Iran war, stocks continue to defy gravity. Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a Wednesday note that AI has been a "powerful driver as companies spend heavily on compute, data centers, and infrastructure, supporting the tech, manufacturing, energy, and industrial sectors." Shalett wrote that while stocks still have room to run, heading into 2027 they face pressures such as rising bond yields, elevated oil prices, policy uncertainty, and stress on lower-income consumers. "Risks are becoming harder to ignore," she wrote.
A market pullback poses a risk to retirees—especially those in early retirement who must draw income from their equity portfolios. This situation is known as "sequence-of-returns risk": the order in which returns or losses occur over time matters when you sell investments. Withdrawing money from depreciating stocks reduces the growth base when the market eventually rebounds, leaving retirees more vulnerable to running out of money in their later years. Financial advisors say retirees can typically avoid this danger by drawing income from bonds or cash-like assets when the equity portion of their portfolio is slumping.
"If you're properly planned and structured, this shouldn't be a huge concern," Reid said. But economists say an end to the boom-fueled retirement party could pose risks to the labor market and the economy. If older workers delay retirement under negative wealth effects, job turnover will decline, making it harder for the unemployed and other job seekers to find new work. Economists say this could put upward pressure on the unemployment rate—which currently sits at 4.1%, still relatively low from a historical perspective.
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