Stocks surge on AI optimism

The S&P 500 has posted double-digit annual returns since 2023, driven largely by euphoria over artificial intelligence. Returns were 26% in 2023, 25% in 2024 and 18% in 2025.

Older workers are leaving fast

Workers age 55 and older are exiting the labor force at a rapid pace. Since August 2024, their labor force participation rate has declined from 38.6% to 37.2%, according to Bureau of Labor Statistics data.

The wealth effect explained

Economists say the stock surge has created a wealth effect: workers near retirement age have seen their portfolios swell and feel rich enough to finally leave their jobs.

Bank of America calls it a party

Bank of America economists Stephen Juneau and Aditya Bhave referred to the trend as a stock-fueled retirement party, writing that labor force participation is collapsing among older workers.

“Labor force participation is collapsing among older workers. We think the strength of the equity market is partly to blame.”

Household wealth hits record high

The net worth of households and nonprofits increased by 12.8 trillion dollars, to 195.9 trillion dollars, in the second quarter of 2026, driven primarily by strong stock returns. It is the largest quarterly wealth increase on record since 2000.

Retirees feel confident now

Thomas Ryan, a North America economist at Capital Economics, said the wealth surge puts people in a position where they can retire early because they are in a favorable financial position.

“It puts people in a position where they can retire early, because they're in a favorable [financial] position.”

Demographics compound the trend

The wealth effect compounds a broader demographic trend. From 2024 to 2027, more than 4 million young baby boomers each year are expected to turn 65, reaching traditional retirement age.

Early retirement packages accelerate exits

Early retirement packages, including those offered to federal workers by the Department of Government Efficiency and by Microsoft, which offered its first-ever retirement program to U.S. workers this year, have also contributed to the trend.

What if stocks fall?

If stocks decline, older workers may be reluctant to stay retired and could attempt to unretire. Thomas Ryan asked what happens if there is a long-expected drawdown in the equity market and the AI bubble reverses.

“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?”

Sequence of returns risk looms

A stock drawdown poses risks for retirees, especially those early in retirement. Withdrawing money from declining stocks leaves less runway for growth when markets rebound, a danger known as sequence of returns risk.

Labor market could suffer

If older workers delayed retirement amid a negative wealth effect, there would be less churn in the job market, making it harder for unemployed workers and job seekers to land new positions and putting upward pressure on the unemployment rate.

Risks mount heading into 2027

While stocks have room to run, they face pressure from higher bond yields, elevated oil prices, policy uncertainty and strain among lower-income consumers. Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, wrote that the risks are becoming harder to ignore.

“The risks are becoming harder to ignore.”