The Enigma of Reluctance in Employment: Pandemic-Driven Market Surge Empowered Countless Retirements

Why 'No One Wants to Work Anymore': Pandemic Market Boom Let Millions Retire. Since the onset of the pandemic, business proprietors have encountered recruitment obstacles, resurfacing the timeless chant of "the workforce is disinterested."

{tocify} $title={Select Topic}

However, which individuals, precisely, have withdrawn from the labor pool? One significant factor contributing to the scarcity of labor could be seasoned employees attaining ample affluence, rendering employment unnecessary.

Key TakeAway

• The labor market is still experiencing the repercussions of a surge in retirements during the pandemic era: 2.4 million additional individuals have embraced retirement compared to what the pre-pandemic trajectory would anticipate.
• The surge in stock and housing prices between 2020 and 2021 amplified the wealth of numerous seasoned employees, empowering a considerable number of them to discontinue their work.
• While a few individuals returned to work after the stock market decline in 2022, their numbers were insufficient to counteract the prevailing pattern.

The Pandemic Spawned 2.4 Million 'Excessive Retirees'

This revelation stems from a working manuscript authored by an economist at the Federal Reserve Bank of St. Louis, who observed a remarkable surge in retirements during the pandemic, which has yet to revert back to normalcy. According to Miguel Faria e Castro and research associate Samuel Jordan-Wood's analysis, as of April, there existed an additional 2.4 million retired employees compared to pre-pandemic projections, owing to the altered financial circumstances of numerous individuals.

The researchers further deduced that the surge in the valuation of assets such as stocks and homes between 2020 and 2022 likely played a significant role in facilitating earlier retirements for many individuals.

Retirements Skyrocketed Amidst the Pandemic

The proportion of retired individuals in relation to the overall population experienced a substantial surge throughout the pandemic and has yet to revert to its previous state. According to a model incorporating demographic factors such as age, gender, education, and race, the data reveals that as of April, there existed an additional 2.4 million retirees compared to what would have been anticipated based on pre-pandemic patterns. (To explore a specific data point, click or hover over the corresponding section of the chart.)

That's what unfolded for Gerald and Alison Huck, the Florida couple who were both employed in the defense industry before embarking on retirement at the age of 57 in 2021. The topic of retirement arose during Gerald Huck's annual meeting with his financial advisor when he noticed a significant surge in his portfolio due to the booming stock market.

"I made a casual remark, like, 'I wish I could retire right now,'" recalls Huck. "And he responded, 'Well, you probably can.' I retorted, 'If I probably can, then why on earth am I still working?'"

Inspired by this conversation, the Hucks bid farewell to their traditional occupations and joined the ranks of retirees, discovering that their decision was far from unique.

Experienced Employees Could Afford to Depart from Employment—And Many Haven't Returned

The research conducted by the St. Louis Fed illuminates a distinctive phenomenon witnessed in the post-pandemic economy: there exists a disparity between the number of available jobs and the available workforce, largely due to the departure of numerous older employees from the labor pool when the pandemic emerged. This shortage of workers has contributed to an unemployment rate that continues to remain close to record lows, despite growing concerns of an economic downturn.

The overall participation rate of the labor force—which denotes the percentage of individuals who are either employed or actively seeking employment—plunged from 63.3% to 60.1% when COVID-19 struck, and although it has since recovered to 62.6% as of May, it still falls short of its previous level.

Younger workers have managed to reenter the workforce, with those aged 25-54 currently working more hours compared to the pre-pandemic era. However, the same bounce-back has not been observed for older workers. Merely 38.4% of individuals above the age of 55 are currently part of the workforce, a decline from 40.3% prior to the pandemic.

Aversion to Work: Absence of Interest Among Individuals 55 and Above

The participation rate of individuals aged 55 and above experienced a drastic decline upon the onset of COVID-19 and has remained persistently low ever since. Recent research indicates that the escalating worth of stocks and residential properties facilitated a surge in premature retirements. (To explore a specific data point, tap or hover over the corresponding section of the chart.)

A Portion of this Phenomenon Arises as Natural Progression Amidst an Aging Population

As the overall population continues to age, it is expected that such a phenomenon will occur. The recent report from the Census Bureau reveals that the median age of Americans increased by 0.2 years to 38.9 between 2021 and 2022, primarily due to a declining birth rate compared to previous years. However, the number of retirements surpassed what would have been anticipated solely based on the aging process.

Research conducted by Castro elucidates that the driving force behind this trend is what economists refer to as "wealth effects." In simple terms, individuals tend to work less when they possess greater wealth since they prioritize leisure time over the financial rewards of working when the pressure to earn is reduced.

Castro states in an email, "This effect is particularly significant for older individuals who are on the verge of exiting the workforce altogether. Increases in wealth within this demographic have a profound impact on their willingness to work. Since individuals nearing retirement age typically accumulate substantial assets (as they save for retirement) and the value of many assets experienced significant growth during the pandemic, it made them more inclined to retire."

Indeed, the pandemic swiftly elevated the wealth of numerous older individuals. The stock market witnessed a remarkable surge, exemplified by the S&P 500 stock index skyrocketing over 35% between 2019 and 2021.

Thriving Stock Market Ignited Retirement Wave Amidst the Pandemic

During the pandemic, the S&P 500 stock index experienced a remarkable upswing, soaring over 40% from its inception until the start of 2022 when it reached an unprecedented peak. Retirement portfolios heavily invested in stocks witnessed parallel growth, benefitting from the market's momentum.

Simultaneously, housing prices witnessed a substantial surge, escalating by 30% during the corresponding timeframe, as indicated by the S&P CoreLogic Case-Shiller Home Price Index.

Residential Properties Evolved into Lucrative Investments Amidst Soaring Prices

The value of houses, as gauged by the S&P CoreLogic Case-Shiller Home Price Index, skyrocketed by over 40% compared to pre-pandemic benchmarks, reaching its pinnacle in June 2022. This remarkable upsurge enabled numerous retirees to capitalize on their homes' high market value and relocate to more affordable regions.

Amidst the prosperous phase of 2020 and 2021, individuals in the older age bracket witnessed substantial upswings in their overall net worth. According to Castro's calculations, those aged 55 to 64 experienced an average gain of $121,000, while those between the ages of 65 and 74 fared even better, witnessing an average increase of $135,000 in their net worth.

Conversely, younger individuals, who possess fewer assets, did not experience such significant advancements. On average, those under the age of 35 typically saw a gain of $15,000.

The Boom Hasn't Lasted

Undoubtedly, the COVID-19 pandemic prompted numerous early retirements for reasons beyond financial considerations. Many older workers expressed concerns about their health during the pandemic, while others assisted their families with childcare responsibilities. However, according to Castro, the changes in net worth resulting from the boom enabled many of these early retirements, even if they were not the sole cause.

Kent Smith, a traveling consultant based in Los Angeles, exemplifies this trend. When the pandemic struck and his projects dried up, he faced a harsh reality at the age of 61 in September 2020: either persist in a career with dim prospects or opt for retirement. The soaring stock market made the decision remarkably straightforward.

"Even though there was COVID, things were going great guns," Smith recalled. "The numbers I had in mind for retirement were far exceeded by my accounts. So I thought, You know what? I can retire. I can make this work."

In 2022, both the stock market and housing market experienced some setbacks, relinquishing a portion of their previous gains. Despite a partial recovery, they have yet to reach the peaks attained that year. Concurrently, job opportunities have become more alluring due to a robust labor market, and the threat posed by COVID-19 has diminished. Consequently, the retirement boom has lost some momentum, with the number of surplus retirees decreasing by 550,000 from its peak in December 2022 to 2.4 million as of May, as per Castro's analysis.

When stocks tumbled in 2022, resulting in the S&P 500 entering bear territory, Gerald Huck was compelled to reassess his retirement plans upon scrutinizing the balance of his retirement account.

"One day, you open it up, and it hits you in the face that you've lost $300,000," Gerald Huck expressed.

Both Gerald and Alison have temporarily resumed employment, with Gerald at NASA and Alison working as a visual merchandiser for a furniture store.

Conversely, Smith has opted to remain retired.

"I'm still comfortable with the numbers," he affirmed.