Older Americans are throwing a 'stock-fueled retirement party' — but when the music stops, they may be forced back to work

Bank of America economists referred to this trend as a “stock-fueled retirement party” in an August study, according to CNBC.

“Labor force participation is collapsing among older workers,” wrote economists Stephen Juneau and Aditya Bhave. “We think the strength of the equity market is partly to blame.”

But the party can’t last forever. And if early retirees suddenly aren’t as rich as they thought they were, they may have to go back to work, or adjust their expectations for a more comfortable retirement.

Why the ‘wealth effect’ might end

Stocks are the growth engine of your portfolio, helping to hedge against inflation and the rising cost of living. Over the past few years, they’ve performed remarkably well, leading to the “wealth effect.”

Since 2023, they have seen exceptional returns, with the S&P 500 rising 24% in 2023, 23% in 2024 and 16% in 2025.

The “bull case remains intact,” with the U.S. market rising about 12.5% to 13% year to date and non-U.S. equities rising about 20%, Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, wrote in a September report.

“However, the risks are becoming harder to ignore,” Shalett wrote. “Higher bond yields, elevated oil prices, policy uncertainty and strain among lower-income consumers could test the rally as we move toward 2027.”

Indeed, some economists believe the AI bubble is ready to pop.

“There are plenty of signs that we are now in the late stages of a bubble in AI,” John Higgins, chief economic adviser for financial markets at Capital Economics, said in a September report.

Capital Economics estimates that the bubble will burst in 2027, with stocks falling at least 20% from their most recent high in the S&P 500.

If this happens, early retirees enjoying a “stock-fueled retirement party” may have a bit of a hangover (and maybe a few regrets).

“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?” Thomas Ryan, an economist at Capital Economics, told CNBC. “You’d potentially get some people at the margin who feel their 401(k) is in a good position now at 56, 57 years old who might come back to the labor force.”

Indeed, 6% of retirees “unretired” during the first half of this year, largely because they needed the money, according to an AARP survey.

How to protect your nest egg

Early retirees could face a sequence of returns risk, which means if you have to sell depreciated assets to fund your retirement, you’ll whittle away your savings before they have time to recover when the market eventually rebounds.

This isn’t ideal at any point, but it can be detrimental in the early years of retirement, since your portfolio may never fully recover.

For those joining the party early, however, advisors generally recommend shifting to a more conservative portfolio over time. That might mean moderate growth in early retirement (with a higher stock allocation), more dividend-paying stocks and bonds in mid-retirement and lower-risk investments in late retirement.

The bucket strategy can help retirees manage cash flow during a down market. For example, your near-term bucket should cover one to three years of lifestyle expenses with accessible cash in high-yield savings, money market funds or short-term cash equivalents.

Your medium-term bucket (years 3 to 10) isn’t overly aggressive. It’s designed for moderate growth and income through vehicles such as bonds, dividend stocks, or fixed income.