Rising U.S. stocks may be prompting more people 55 and older to retire
The labor-force participation rate for Americans ages 55 and older has continued to decline in recent years. Bank of America said in a recent analysis that sustained gains in U.S. stocks have created a wealth effect, with rising account balances prompting some older workers to retire. The wealth effect refers to the economic phenomenon in which rising prices for assets held by households, such as stocks, increase their paper wealth and in turn influence decisions about consumption, work and retirement. A recent research memo from Bank of America, citing U.S. Bureau of Labor Statistics data, said the labor-force participation rate for Americans 55 and older was 40.3% in February 2020. By July 2026, it had fallen to 36.9%. Aditya Bhave, a managing director and U.S. economist at Bank of America Global Research, said, “We believe this is related to the S&P 500’s cumulative gain of more than 35% over the past two years.” In his view, the sharp rise in stocks has made it easier for people who were still weighing when to leave the workforce to choose retirement. “There has long been a puzzle in the labor-force data,” Bhave said. “Across the U.S. economy, the vast majority of indicators had recovered on a stronger-than-expected trajectory after 2022. The labor-force participation rate for older workers was the one exception, lagging behind, and it has declined again in recent months.” Bhave did not attribute the phenomenon entirely to the stock market. “No single causal factor can fully explain it,” he said. “But it is clear that the stock market’s strong performance over the past two years—and, if we include market performance since 2020, the S&P 500’s cumulative gain of more than double—has increased wealth and prompted some people to retire. They feel, ‘I don’t have to keep working.’” “Rising wealth has given people enough confidence to retire. Even relatively risk-averse groups have a substantial financial buffer,” he said. On the risk of a market correction, Bhave said, “In my view, these people currently have a sufficient financial cushion. They may believe the stock market could pull back, but as long as there is no catastrophic plunge, their wealth has already accumulated substantially. Even if the market retreats, their retirement lifestyle can still be protected.” Financial advisers who work with clients nearing retirement have also observed similar behavior. Tyson Sprick, another financial planner, said he had seen the same pattern among his clients. “Account gains on paper have reached record highs, and some clients have consequently decided to retire formally,” he said. He added, “Some clients also ask how long this rally can last and whether they could maintain their lifestyle if the market fell sharply. We incorporate forward-looking assumptions into our plans based on current market conditions. We cannot predict the future, but we also understand that such strong investment returns cannot continue forever.” People who are not yet ready to retire have also benefited from the stock-market rally. Bank of America’s latest data showed that the average balance in 401(k) plan accounts reached $124,250 in the second quarter of 2026, up 15% from a year earlier. A 401(k) account is an individual retirement savings and investment account established by U.S. employers for their employees. The data showed that about two-thirds of employees participating in 401(k) plans were confident their savings would support their desired retirement age and standard of living, up 6 percentage points from a year earlier.
The wealth effect refers to the economic phenomenon in which rising prices for assets held by households, such as stocks, increase their paper wealth and in turn influence decisions about consumption, work and retirement.
A recent research memo from Bank of America, citing U.S. Bureau of Labor Statistics data, said the labor-force participation rate for Americans 55 and older was 40.3% in February 2020. By July 2026, it had fallen to 36.9%.
Aditya Bhave, a managing director and U.S. economist at Bank of America Global Research, said, “We believe this is related to the S&P 500’s cumulative gain of more than 35% over the past two years.”
In his view, the sharp rise in stocks has made it easier for people who were still weighing when to leave the workforce to choose retirement.
“There has long been a puzzle in the labor-force data,” Bhave said. “Across the U.S. economy, the vast majority of indicators had recovered on a stronger-than-expected trajectory after 2022. The labor-force participation rate for older workers was the one exception, lagging behind, and it has declined again in recent months.”
Bhave did not attribute the phenomenon entirely to the stock market. “No single causal factor can fully explain it,” he said. “But it is clear that the stock market’s strong performance over the past two years—and, if we include market performance since 2020, the S&P 500’s cumulative gain of more than double—has increased wealth and prompted some people to retire. They feel, ‘I don’t have to keep working.’”
“Rising wealth has given people enough confidence to retire. Even relatively risk-averse groups have a substantial financial buffer,” he said.
On the risk of a market correction, Bhave said, “In my view, these people currently have a sufficient financial cushion. They may believe the stock market could pull back, but as long as there is no catastrophic plunge, their wealth has already accumulated substantially. Even if the market retreats, their retirement lifestyle can still be protected.”
Financial advisers who work with clients nearing retirement have also observed similar behavior.
Tyson Sprick, another financial planner, said he had seen the same pattern among his clients. “Account gains on paper have reached record highs, and some clients have consequently decided to retire formally,” he said.
He added, “Some clients also ask how long this rally can last and whether they could maintain their lifestyle if the market fell sharply. We incorporate forward-looking assumptions into our plans based on current market conditions. We cannot predict the future, but we also understand that such strong investment returns cannot continue forever.”
People who are not yet ready to retire have also benefited from the stock-market rally. Bank of America’s latest data showed that the average balance in 401(k) plan accounts reached $124,250 in the second quarter of 2026, up 15% from a year earlier.
A 401(k) account is an individual retirement savings and investment account established by U.S. employers for their employees. The data showed that about two-thirds of employees participating in 401(k) plans were confident their savings would support their desired retirement age and standard of living, up 6 percentage points from a year earlier.