The stock market boom is fueling "retirement parties"! Workers over 55 are accelerating their exit, with the AI bull market as a driving force.

The stock market boom appears to be fueling a wave of retirements. Workers aged 55 and over are rapidly exiting the labor force, a trend that coincides with swelling stock market wealth driven by the AI boom, according to government data. Economists at Bank of America, in a research report last month, called this trend a "stock-market-fueled retirement party." Economists say the surge in retirements among these workers is partly due to the "wealth effect": workers nearing traditional retirement age see their stock portfolios swell, feel wealthy enough, and finally leave their nine-to-five jobs. "The labor force participation rate of older workers is collapsing," economists Stephen Juneau and Aditya Bhave wrote. "We think a strong stock market is part of the reason." Economists say the exit of older workers from the labor force in recent years has helped keep the unemployment rate relatively low. These exits have freed up space for job seekers and new entrants to the labor market, they say a significant factor in an otherwise frozen job market. However, economists say that if AI optimism fades and the stock market sours, it could mean bad news for these recent retirees, the U.S. labor market, and the economy. **A "favorable" financial situation** The labor force includes people who have jobs as well as the unemployed who are looking for work. The labor force participation rate is the share of the population that is in the labor force. The participation rate of workers aged 55 and over fell sharply in the early days of the pandemic, as did that of workers overall. But post-pandemic, the labor force participation rate of older workers "never recovered," Bank of America economists wrote. They wrote that the metric was "range-bound" until the summer of 2024, but "has since fallen sharply again." According to Bureau of Labor Statistics data, since August 2024, the labor force participation rate of workers aged 55 and over has fallen from 38.6% to 37.2%. Meanwhile, according to data compiled by Aswath Damodaran, a finance professor at New York University, the S&P 500 has delivered a string of double-digit returns for investors in recent years: up 26% in 2023, up 25% in 2024, and up 18% in 2025, including reinvested dividends. As of Monday morning, the index was up about 16% so far in 2026. Thomas Ryan, North America economist at Capital Economics, said the resulting surge in wealth including retirement accounts such as 401(k)s may have made the retirement decision easier for many people. Federal Reserve data show that in the second quarter of 2026, household and nonprofit net worth rose by $12.8 trillion to $195.9 trillion, driven mainly by strong stock market returns. According to CNBC's 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 to retire early because their finances are in good shape," Ryan said. Of course, near-retirees are unlikely to be entirely invested in stocks. Financial advisers typically recommend shifting to more conservative asset allocations before and after retirement to avoid exposing one's entire retirement savings to stock market volatility. Still, the typical 65-year-old may still have a relatively high allocation to stocks perhaps 50%, for example, with the rest in assets such as bonds and cash. Stocks are the traditional growth engine of a portfolio and a hedge against rising living costs over a retirement that could last decades. "If people aren't confident enough that they can afford to retire, they won't retire and the data would tell a completely different story," said Michael Reid, U.S. economist at RBC. **Wealth effect amplifies demographic trends** But the wealth effect isn't the only factor weighing on the labor force participation rate of older workers. Economists say the wealth effect has amplified broader demographic trends. 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 said labor force participation trends may also be partly due to early retirement programs, including those offered to federal employees by the so-called Department of Government Efficiency (DOGE), as well as companies like Microsoft which this year offered a retirement program to U.S. employees for the first time. What if the stock market pulls back? Economists say that if the stock market starts to weaken, older workers may be reluctant to exit the labor force and may even try to "return to work." "If we get the long-awaited stock market pullback, if we're in an AI bubble and it reverses at some point, what happens?" Ryan said. "You could see some people on the margin who felt good about their 401(k) at 56 or 57 potentially returning to the labor force." Of course, that outcome isn't inevitable. Despite headwinds such as the Iran war, the stock market has remained defiant of gravity. Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a Wednesday report that AI has been a "powerful DRIVE, as companies spend heavily on computing power, data centers, and infrastructure, supporting the tech, manufacturing, energy, and industrial sectors." Shalett wrote that while stocks still have room to rise, heading into 2027 they will face pressures such as rising bond yields, high oil prices, policy uncertainty, and strain on lower-income consumers. "The risks are becoming increasingly hard to ignore," she wrote. A stock market pullback poses risks for retirees especially those in the early years of retirement who must withdraw funds from their stock portfolios as income. This situation is known as "sequence-of-returns risk": when you sell investments, the order in which gains or losses occur over time matters. Withdrawing funds from depreciated stocks reduces the growth potential when the market eventually rebounds, making retirees more vulnerable to running out of money in their later years. Financial advisers say retirees can typically avoid this danger by drawing income from assets such as bonds or cash when the stock portion of their portfolio plunges. "If you've planned well and set things up properly, this shouldn't be too much of a concern," Reid said. But economists say the end of the boom-fueled retirement party could pose risks to the labor market and the economy. Economists say that if older workers delay retirement under a negative wealth effect, job market churn will decrease, which could make it harder for the unemployed and other job seekers to find new work. Economists say this could put upward pressure on the unemployment rate currently 4.1%, which is still relatively low from a historical perspective.