Chapter 1 A Short History of Retitrement

When I want to understand what is happening today, I try to decide what will happen tomorrow; I look back; a page of history is worth a volume of logic.

With the advent of industrialization came a population shift from the country-sides to the cities. This brought about significant lifestyle adjustment as people went from self-sufficiency to dependency. Work became a means to an end -- an income to live on -- as opposed to a way of life. In his book The Sociology of Retirement (John Wiley & Sons, 1976), Robert C. Atchley made an insightful comparison between a craftsman and a worker. A craftsman controls the process and the product, which makes his work both satisfying and integral to his identity. An industrial worker is responsible for one small part of the process. Consequently, the work offers little reward. Atchley also noted that the words job and occupation soon began to replace the terms craft and vocation in the American labourer's lexicon. We can trace a cycle of degradation of the national work ethic to this point in history, which comes as no surprise because you would naturally expect people to become lethargic about work that offers us no emotional reward.

They, the financial services companies , began to market retirement as an individual's rightful reward for his or her years of labour and loyal service.

COTTON MATHER'S BIG IDEA

Old people hanging on to their worldly goods also threatened the social and economic fabric of Colonial America. Celebrated Puritan zealot Cotton Mather is generally credited with stimulating the national appetite for witch trials. But few people realize that he was among the first to try to force the elderly to retire. ''Be so wise as to disappear of your own Accord,'' he exhorted them. ''Be glad of dismission. . . . Be pleased with the Retirement which you are dismissed into.'' Nobody listened.

 

BISMARCK INVENTS RETIREMENT

In 1883, Chancellor Otto Von Bismarck of Germany had a problem. Marxists were threatening to take control of Europe. To help his countrymen resist their blandishments, Bismarck announced that he would pay a pension to any nonworking German over age 65. Bismarck was no dummy. Hardly anyone lived to be 65 at the time, given that penicillin would not be available for another half century. Bismarck not only co-opted the Marxists, but set the arbitrary world standard for the exact year at which old age begins and established the precedent that government should pay people for growing old.

 

In 1881 Otto von Bismarck, the conservative minister president of Prussia, presented a radical idea to the Reichstag: government-run financial support for older members of society. In other words, retirement. The idea was radical because back then, people simply did not retire. If you were alive, you worked—probably on a farm—or, if you were wealthier, managed a farm or larger estate.

 

But von Bismarck was under pressure, from socialist opponents, to do better by the people in his country, and so he argued to the Reichstag that "those who are disabled from work by age and invalidity have a well-grounded claim to care from the state.” It would take eight years, but by the end of the decade, the German government would create a retirement system, which provided for citizens over the age of 70—if they lived that long.

This was a big "if," at the time. That retirement age just about aligned with life expectancy in Germany then. Even with retirement, most people still worked until they died.

 

There were exceptions though. Military pensions had long been given to soldiers who had risked their lives (though those pensions didn't necessarily mean they could stop working altogether). In the United States, starting in the mid-1800s, certain municipal employees—firefighters, cops, teachers, mostly in big cities—started receiving public pensions, too, and in 1875, the American Express Company started offering private pensions. By the 1920s, a variety of American industries, from railroads to oil to banking, were promising their workers some sort of support for their later years.

 

PASTURE-IZING THE ELDERLY.

It was the world-renowned physician William Osler who laid the scientific foundations that, when combined with a compelling economic rationale, would eventually make retirement acceptable. In his 1905 valedictory address at the Johns Hopkins Hospital, where he had been physician-in-chief, Osler said it was a matter of fact that the years between 25 and 40 in a worker's career are the ''15 golden years of plenty.'' He called that span ''the anabolic or constructive period.'' Workers between ages 40 and 60 were merely uncreative and therefore tolerable. He hated to say it, because he was getting on, but after age 60 the average worker was ''useless'' and should be put out to pasture.

 

FACTORY REJECTS.

Retirement came in very handy in the United States, where large numbers of aging factory workers were wandering around the Industrial Revolution, dropping things into the works, slowing down assembly lines, taking too many personal days and usurping the places of younger, more productive men with families to support. It was one thing when an occasional superannuated farmer leaned on his hoe in an agrarian culture -- a few bales of hay more or less didn't matter. But it was quite another when lots of old people caused great unemployment among younger workers by refusing to retire. The Great Depression made the situation even worse. It was a Darwinian sacrificial moment. Retirement was a necessary adaptation and everybody knew it, but the old guys were not going quietly. The toughest among them refused to quit, even when plant managers turned up the conveyor belts to Chaplinesque speeds.

 

THE BIG PAYOFF.

By 1935, it became evident that the only way to get old people to stop working for pay was to pay them enough to stop working. A Californian, Francis Townsend, initiated a popular movement by proposing mandatory retirement at age 60. In exchange, the Government would pay pensions of up to $200 a month, an amount equivalent at the time to a full salary for a middle-income worker. Horrified at the prospect of Townsend's radical generosity, President Franklin D. Roosevelt proposed the Social Security Act of 1935, which made workers pay for their own old-age insurance.

 

LEISURE WEARING.

What used to mean going to bed suddenly meant banishment to an empty stage of life called ''retirement.'' If people were not going to work, what were they going to do? Sit in a rocking chair? Eleanor Roosevelt thought so. ''Old people love their own things even more than young people do. It means so much to sit in the same chair you sat in for a great many years,'' she said in 1934. But she was wrong. Most retired people wished they could work. The problem was still acute in 1951, when the Corning company convened a round table to figure out how to make retirement more popular. At that conference, Santha Rama Rau, an author and student of Eastern and Western cultures, complained that Americans did not have the capacity to enjoy doing nothing.

 

THE GREAT MIGRATION.

The opposite of work turned out to be play. The rich discovered leisure first, but by 1910 Florida became accessible to the middle class. Retirement communities, where older people did not have to see younger people working, began to appear in the 1920's and 30's. The number of golf courses in the United States tripled between 1921 and 1930. Subsequent technological developments like movies and television helped turn having nothing to do into a leisure time activity. From now on, the elderly would work at play.

 

SENIORS ARE BORN.

The publication in 1955 of Senior Citizen magazine was the first widespread use of the euphemism that, while intending to reconfer respect, instead made a senior citizen sound like an over-decorated captain in ''The Pirates of Penzance.'' Its merely partial success may also be linked to the fact that there is something inherently suspicious about an age group that has to offer its potential members discounts to induce them to join.

 

THE R WORD.

In 1999, The American Association of Retired Persons, once the Welcome Wagon of retirement, dropped the word ''retired'' from its name and became The American Association of R****** Persons. This change was effected in recognition of a basic reality -- many of its members are not retired -- and in anticipation of the baby boomers' threat never to stop wearing Lycra, turn gray, stop carrying around bottled water or retire.

 

Most of these pension programs pegged the retirement age to 65. This mark had less to do with health and more with economics—workers could keep on trucking for years, and "old age" didn't necessarily mean bad health. (There was some research, however, that documented a decline in mental capabilities starting around age 60. Conventional wisdom held, too, that by 60 a man had certainly done his best work and should give way to the next generation.) When the federal government started creating what would become social security, some of the policies suggested would have had workers off the clock at 60, or even earlier. The economics of that didn't quite work, though, and so when the Social Security Act was passed in 1935, the official retirement age was 65. Life expectancy for American men was around 58 at the time.

Almost immediately after that, though, that balance changed. The Depression ended, and wealth and better medicine meant that in the post-war boom, Americans started to live longer. By 1960, life expectancy in America was almost 70 years. All of a sudden more people were living past the age where they had permission to stop working and the money to do it. Finally, they began to retire in large numbers—to stop working, to embrace leisure, to golf. For a few decades, older Americans lived without working, enough that we've come to expect that we should be able to retire, even if that may no longer be financially possible for many. Today, the Social Security Administration estimates that there are 38 million retired people in the United States alone.

 

The Growth of Private Pensions

However, even with their financial security assured, seniors still did not want to retire. A Labor Force Participation Rate study shows that by the 1940s, over 50% of men over the age of 65 were still working. The wealthy discovered the life of leisure first and retirement communities began to pop up in the 1920s and 1930s, while golf courses increased in number as well.
Technological innovations like the television and the highway systems helped bring the idea of leisure into the national conscience. The period of plenty following World War II also allowed Americans to relax and enjoy their newfound wealth. Labor Force Participation Rates show the shift to leisure, with the number dropping precipitously between the 1950s and 1980s, when just 24% of men over 65 were still working.

In the 1960s and 1970s, the federal government began to enact laws to regulate private pensions and to offer tax incentives to employers to offer retirement plans. Since the early 1960s, the self-employed have been able to establish “Keogh” plans – retirement accounts similar to those offered by corporate pension plans. To further level the playing field for the self-employed, the Employment Retirement Income Security Act (ERISA) act of 1974 established Individual Retirement Accounts (IRA) to allow those not covered by a private pension plan the ability to invest in a qualified plan.

ERISA also helped safeguard the safety of retirement plans and protect them from insolvency. Under ERISA regulations, employers are required to segregate retirement funds and guard them against unexpected events that could threaten solvency.

Over time, pensions shifted away from “defined benefit” to “defined contribution” plans. Defined benefit plans promise, like Social Security, a fixed benefit to be paid out over the course of retirement. This, however, puts the onus on the employer (or government) to make up any shortfalls in the event of poor investment management. Today, more employers offer defined contribution plans, which only guarantee the amount to be contributed by the employer. Actual benefits depend on investment performance, thus shifting the burden onto the employee. However, there also exists the possibility of greater upside for the employee since long-term investment performance may lead to a greater retirement savings. The popular 401(k) retirement plan is based on a 1978 congressional provision designed to offer tax breaks on deferred income. In the 1980s 401(k)s began to supplant pension plans as cheaper ways to allow employees to invest in securities. The growing popularity of these plans helped spark a period of intense growth in the financial industry as billions of dollars in retirement savings were shifted away from pension plans and into mutual funds and securities markets.

Today, retirement is a much-appreciated end to a working career. Life expectancies have skyrocketed in the past decades and people can look forward to living many years past retirement age. With retirement communities and senior-oriented leisure activities, today’s retirees are working hard at play.