Government data show that workers aged 55 and older are rapidly exiting the labor market, a trend that has emerged in tandem with the stock market wealth boom driven by the artificial intelligence frenzy. Economists at Bank of America have dubbed this phenomenon the “stock-market-fueled retirement party.”
Economists believe that the surge in retirements among these workers is partly attributable to the “wealth effect”: workers approaching the traditional retirement age see their stock portfolios swell, feel wealthy enough, and finally decide they can 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 the strong stock market is part of the reason.”
In recent years, older workers exiting the labor force have helped keep the unemployment rate relatively low. These exits have freed up space for job seekers and new entrants to the labor market, an important factor in what had otherwise been a frozen job market. However, economists say that if AI optimism fades and the stock market turns sour, it could mean bad news for these recent retirees, the U.S. labor market, and the economy.
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 older fell sharply in the early days of the COVID-19 pandemic, but it “never recovered” after the pandemic. According to U.S. Bureau of Labor Statistics data, since August 2024, the metric has fallen from 38.6% to 37.2%.
Meanwhile, the S&P 500 has delivered a string of double-digit returns to investors in recent years: including reinvested dividends, it rose 26% in 2023, 25% in 2024, and 18% in 2025. Federal Reserve data show that in the second quarter of 2026, the net worth of households and nonprofit organizations increased by $12.8 trillion to $195.9 trillion, driven mainly by strong stock market returns.
Thomas Ryan, a North America economist at Capital Economics, said the resulting wealth surge may have made retirement an easier choice for many people. “It puts people in a position to retire early because their financial situation is favorable,” Ryan said.
The wealth effect has also amplified broader demographic trends. Between 2024 and 2027, more than 4 million younger baby boomers are expected to turn 65 each year. Michael Reid, head of U.S. economics at RBC, said early retirement packages have also partly driven the trend, including offers made by the Department of Government Efficiency to federal employees and retirement plans that companies such as Microsoft offered to U.S. employees this year for the first time.
Economists say that if the stock market begins 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 are in an AI bubble now and it reverses at some point, what happens?” Ryan said. “You could see some marginal group of people who felt good about their 401(k) at 56 or 57 and might return to the labor force.”
Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote that AI has been a “powerful driver,” but heading into 2027 it will face pressures such as rising bond yields, high oil prices, policy uncertainty, and strain on lower-income consumers. “The risks are becoming increasingly difficult to ignore,” she wrote.
A stock market pullback poses risks for retirees, especially those in the early stages of retirement who must withdraw funds from their stock portfolios as income. This situation is known as “sequence-of-returns risk.” Financial advisers say retirees can usually avoid this danger by drawing income from assets such as bonds or cash when the stock portion of their portfolio plunges.
