The stock market boom is spawning “retirement parties”! Workers over the age of 55 left the market at an accelerated pace, and the AI bull market became the driving force

The Zhitong Finance App learned that the stock market boom seems to be boosting a wave of retirements. According to government data, workers aged 55 and above are rapidly leaving the labor market. This trend coincides with the expansion of stock market wealth driven by the artificial intelligence boom. Bank of America economists called this trend a “stock market-fueled retirement party” in a research report last month.

Economists say the surge in retirement for these workers is due in part to the “wealth effect”: workers close to traditional retirement age see their stock portfolios expand and feel that they are rich enough to finally leave their 9-to-5 jobs.

“The labor participation rate of older workers is collapsing,” wrote economists Stephen Juno and Aditya Babway. “We believe that a strong stock market is part of the reason.”

Economists say that in recent years, elderly workers have withdrawn from the labor force, helping to keep the unemployment rate relatively low. They claim that these withdrawals make room for job seekers and new entrants to the labor market, which is an important factor in the previously frozen job market.

However, economists say that if AI optimism subsides and the stock market deteriorates, it could mean bad news for these recent retirees, the US labor market, and the economy.

A “favorable” financial situation

The workforce includes people with jobs as well as unemployed people looking for work. The labor force participation rate is the ratio of the working population to the total population. The participation rate of workers aged 55 and above dropped sharply in the early days of the COVID-19 pandemic, and so did workers overall.

However, Bank of America economists wrote that the labor participation rate of elderly workers “never recovered” after the pandemic. They wrote that the indicator “ranged” until the summer of 2024, but “fell sharply again after that.”

According to the US Bureau of Labor Statistics, the labor participation rate of workers aged 55 and above has dropped from 38.6% to 37.2% since August 2024.

Meanwhile, according to data compiled by NYU finance professor Asworth Damodaran, the S&P 500 index has brought investors a string of double-digit returns in recent years: after reinvesting dividends, it rose 26% in 2023, 25% in 2024, and 18% in 2025.

As of Monday morning, the index has risen about 16% since 2026.

Thomas Ryan, a North American economist at KITU Macro, said that the resulting surge in wealth — including retirement accounts such as 401 (k) — may make retirement choices easier for many people.

According to Federal Reserve data, in the second quarter of 2026, the net assets of households and non-profit organizations increased by $12.8 trillion to $195.9 trillion, mainly driven by strong stock market returns. According to CNBC's analysis of the Federal Reserve's data, this is the biggest quarterly wealth increase in recorded history since the Federal Reserve began tracking this statistic in 2000.

“It puts people in a position where they can retire early because they are in a favorable financial position,” Ryan said.

Of course, nearing retirees are unlikely to fully allocate shares. Financial advisors usually recommend switching to a more conservative asset allocation before and after retirement to prevent the entire pension savings from withstanding stock market fluctuations.

However, a typical 65-year-old might still allocate a relatively high proportion of stocks — for example, maybe 50%, and the rest of assets such as bonds and cash. Stocks are the traditional growth engine for portfolios and hedge against rising costs of living in retirement that can last for decades.

“If people don't have enough confidence that they can afford to retire, they won't retire — the data will tell a completely different story,” said Michael Reed, head of US economics at the Royal Bank of Canada.

The wealth effect amplifies demographic trends

But the wealth effect is not the only factor that lowers the labor participation rate of older workers. Economists say the wealth effect amplifies broader demographic trends. A record number of people have reached traditional retirement age: between 2024 and 2027, more than 4 million young baby boomers are expected to turn 65 each year.

Reed said that the labor participation rate trend may also be partly due to early retirement programs, including so-called programs offered by the Department of Government Efficiency (DOGE) to federal employees, as well as companies such as Microsoft, which offered retirement plans to American employees for the first time this year.

What happens if the stock market pulls back? Economists say that if the stock market starts to weaken, older workers may be reluctant to leave the labor market and may even try to “return to work.”

“If we have a long-awaited retracement in the stock market, what will happen if we are in an AI bubble and it reverses at some point?” Ryan said, “You might see some marginal people who think their 401 (k) was in good shape when they were 56 or 57 and may return to the labor market.”

Of course, this outcome is not inevitable. Despite facing headwinds such as the war in Iran, the stock market still ignored geocentric gravity.

Lisa Shallette, chief investment officer at Morgan Stanley Wealth Management, wrote in a Wednesday report that AI has always been “a powerful driving force because companies spend heavily on computing power, data centers, and infrastructure, supporting the technology, manufacturing, energy, and industrial sectors.”

Shalet wrote that although there is still room for growth in the stock market, entering 2027, it will face pressure from rising bond yields, high oil prices, policy uncertainty, and pressure on low-income consumers. “The risks are becoming harder to ignore,” she wrote.

Stock market pullbacks pose a risk to retirees — especially those in the early stages of retirement who must withdraw funds from their stock portfolios as income. This situation is known as “yield sequence risk”: when you sell an investment, the order in which the gains or losses occur over time matters.

Withdrawing funds from depreciated stocks will reduce the room for growth when the market finally rebounds, making it easier for retirees to face the risk of running out of funds in old age.

Financial advisors said that retirees can usually withdraw income from assets such as bonds or cash when the share portion of their portfolio plummets to avoid this risk. “If you plan properly and have the right arrangements, this shouldn't be too much of a concern,” Reed said.

However, economists say that the end of the boom-fueled retirement party may pose risks to the labor market and economy.

Economists say that if older workers delay retirement due to negative wealth effects, the labor market turnover will decrease, which may make it harder for the unemployed and other job seekers to find new jobs.

Economists say this may put upward pressure on the unemployment rate — currently at 4.1%, it is still relatively low from a historical perspective.