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Fat 401(k)s causing people to retire early: Oxford Economics
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The stock market¡¯s all-time highs are doing wonders for workers¡¯ 401(k)s, with the largest number of 401(k) and IRA millionaires in history, according to Fidelity data.

As a result, many people are ping out of the workforce to retire earlier than planned, turning their backs on a job seeker¡¯s market.

The Federal Reserve is letting the economy run especially hot in an attempt to bring back people into the workforce, Oxford Economics senior economist Bob Schwartz wrote in a note to clients. But that hot economy and resulting hot market mean bigger 401(k) balances ¨C so some workers may not feel as compelled to continue working when they check their inflated retirement accounts.

¡°Some of the retirees may come back if the job market is hot enough, but the muscular boost to 401(k) plans over the past year may keep a larger fraction of senior workers on the golf course than anticipated,¡± Schwartz wrote.

Last year, account balances increased 21% on average, largely thanks to the market¡¯s rise, rather than contributions, Vanguard reported. The fund firm¡¯s average and median 401(k) balances in 2020 hit $129,157 and $33,472, respectively.

Schwartz pointed out that the number of people who have retired has spiked since the pandemic began, with 2.5 million workers deciding enough is enough. Amid early pandemic layoffs, a lot of that was probably involuntary, as people cared for family members, lost their jobs. According to a May Federal Reserve report, 29% of 2020¡¯s retirees retired due to the pandemic.

The Fed wrote that it¡¯s likely many who retired because of Covid-19 would return to work, and now given the improved job market, there¡¯s even more reason to go back to work.

The big question, then, is whether these two factors balance each other out. Oxford Economics says no.

¡°One likely reason is that ageing baby boomers are entering their golden years with considerably stronger balance sheets than they expected, thanks to surging asset prices and lower debt burdens,¡± Schwartz wrote, noting that household wealth increased 23% ($25.6 trillion) over the past year thanks to rising home values and ever-higher stock market.

¡°However, wealthy households with the fattest portfolios reaped the biggest gains, and it¡¯s unlikely that their appreciated assets greatly affected retirement decisions,¡± Schwartz continued. ¡°That said, it¡¯s important to remember that older households hold more wealth than younger ones, and the improved balance sheets of senior workers may well have tipped them over into retirement.¡±

This would include even those in lower-paying jobs, which often provide access to retirement plans.

¡°Here the improvement over the past year has been even more remarkable. According to the Federal Reserve data, assets in defined contribution plans, mostly 401(k)s, surged by 34% over the past year, exceeding the gain in the broader measure of net worth by the widest margin in at least a decade,¡± Schwartz wrote.

With that big gain, according to Schwartz, ¡°it¡¯s not a stretch to believe that some senior workers feel they have enough to retire on a few years before their planned exit from the labor force.¡±

¡°Historically, when people retire,¡± he continued, ¡°there is only a slim cha

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