A Brief History of Retirement
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From the beginning of human history until the 1880s, there was no such thing as retirement. Even then, it was a highly qualified benefit.
When Bismarck established the first government pension program he chose 70 as the retirement age. At the time most people would not live that long and those who did were generally not expected to be able to keep working because they were "disabled from work by age and invalidity." When the US introduced Social Security in the 1930s, the retirement age was set at 65 when average life expectancy was 58.
The "retirement" that the investment company ads so fondly invoke didn't really become a feature of society until the late fifties. By then public pensions had been joined by private pensions and the idea was that a person would quit work forever and retire to a comfortable lifestyle.
The basic economics made sense then since there were more people joining the labor force than there were retiring. That freed up jobs for the younger workers and provided ever more workers whose contributions would support those who had retired.
More and more people retired instead of continuing to work. In 1900, almost two thirds of adult males over 65 were working. A century later that share had shrunk to 17 percent. But there was trouble brewing.
In 1950, there were twelve adult less than working adults for every retiree. This is called the support ratio. By 2009 it had dropped to 9 working adults for every non-working older person. In 2011, the oldest Baby Boomers are reaching the current retirement age of 65 and life expectancies are lengthening. By 2050 the support ratio is projected to be down to 4 working adults for every retired adult.
The simple math indicates that we won't be able to maintain the idea of retirement as it's existed for the last half century. We may have to go back to the way it was for a much longer chunk of human history and the trend may be accelerated by losses in individual investment portfolios. Retirement as we've known it for fifty years will disappear.
Boss's Bottom Line
No matter what age you are now, it would be sensible to plan for a world
where fewer people retire and where there are more generations in the workplace.
That's going to require a lot of adjustment, but I think that the great
retirement window is starting to close forever.
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Categories: future, Forecasts, Predictions
Tags: Future Prediction
Great reminder, Wally. I personally hope to work until the day I day. Bret
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Me, too, Bret, at least to some extent. Some years ago I read research that indicated that the longest-lived profession is symphony conductors. The interpretation was that they never had to retire. When my father officially retired, he still kept active as a fill-in pastor for local congregations and as a chaplain, but over time his activity level dropped. He said that the big thing about retirement was picking your spots, not working less.
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Can we bid goodbye to the era when people over 50 or 40 (or in IT, 35) are considered out of touch, unable to learn, expensive, lazy, and stodgy? Or will they all have to become entrepreneurs to stay employed?
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I don't know how much of that will actually happen, Kelly. It seems to me that a natural part of life is for younger people to feel that their elders are out of touch and for the elders to resent that. There was a time that bias was reversed the prevailing practice was that older people felt that younger ones were naïve and younger people resented it.
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We have gotten a very skewed idea about retirement. It is possible to have a long relaxing retirement as long as you save money while you are earning it. It isn't really very complicated. You can't have a long retirement where you don't earn money and live off your non-existant savings. You can, if you have savings to live off of.
http://investing.curiouscatblog.net/2006/03/05/saving-for-retirement/
I believe their should be a shift to a gradual retirement, instead of the predominant work 2000 hours a year for 40 years then stop working completely. I think it would make much more sense to work 35 years for 1800 hours (we should thrown in a bit more vacation in my opinion), 10 years of 1,300 hours, 5 years of 1,000 hours... Or some such system, with declining hours as you get closer to retirement.
There is also the matter of defined benefit retirements (pensions, social security...) making ludicras acctuarial assumptions. Obviously you can't fund a penion as though life expectancy is 5 years of retirement and think it will work with a life expectancy of 25 years of retirement. http://investing.curiouscatblog.net/2010/06/18/67-is-the-new-55/
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Thanks for the thoughtful post and links, John. Before retirement plans, most people "retired" gradually as they worked less and less. In close-knit communities they were also cared for more.
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Much-needed and well-done article, Wally. I realized that, as a youngster, there were never family conversations about retiring or "planning for retirement." That didn't serve me well when I could have been investing early on, but it also never created an expectation of riding off into the sunset at some predetermined age. Neither of my grandfathers "retired" although my Dad did (he was a municipal employee).
As for younger people feeling their elders are out of touch, I don't foresee that changing after thousands of years. In fact, what "elders" are actually out of touch with is the totality of the given day's pop culture. You can watch it, catch the buzzwords, but never be accepted as part of the experience because it is unique to the generation and each generation wants to keep it that way. Wise elders do what wise people do: watch, learn what's going on, and decided whether it is necessary to re-direct or just get out of the way. The right choice is most often respected, even if not openly acknowledged.
Kathy's concern about the "over-whatever" bunch is, indeed, a role reversal. However, I'm in companies every day and don't see this as a widespread practice among younger workers. (They may think or feel some of those things, but I don't see them displayed in ways that interfere with work). I believe that people writing books and articles about Gen This and Gen That do more to create a marketplace for such drivel than actually exists.
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Thanks, Steve. Those are all good points, but as I read the generational part I broke into a smile remembering one of my favorite intergenerational moments.
I had called a helpline about a computer issue and I was talking to a young man about my problem. We weren't having much progress and he assumed that I was the problem since, as he told me, "old people have problems using computers." By that point I had owned a computer for more than twenty years and written three books about using the net for business, so I asked him how old he was. It turned out that I had been using computers since before the young man was born.
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I've been led to believe that Bismark created retirement, as a concept, primarily to see off his most fierce and able political rivals in the German parliament .. who were all over 70 years old! Interesting or what?
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I don't know about the age of his opponents, Will, but I can tell you that Bismarck was 74 at the time. There was a political component, though. Bismarck appears to have had two objectives. One was to keep the economy functioning smoothly and another was to head off demand for more socialistic alternatives. In that sense, the political play was very similar to the introduction of Social Security in the US some fifty years later.
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