“The End of Retirement” is a theme we’ve been studying for almost two years.
The basic idea is that retirement as we know it, the popular concept we are all familiar with, is dead.
From here on out the 20th century concept of retirement — may it rest in peace — will be replaced by one of two options:
- One group of retirement-age individuals will stay mentally and physically engaged, finding ways to fulfill themselves with active life pursuits, well into old age, with enough of a financial cushion to follow their passions.
- Alternatively, the group lacking financial resources will work in minimum wage jobs — to close the gap between monthly bills and insufficient government payments — until the very last day they can manage it.
Either way, the idea of putting one’s feet up for a decade or two will vanish.
We now know enough about health, psychology, and life expectancy to understand that having “nothing to do” is a bad idea. The human mind and body were built to be engaged.
And so, for those with the financial resources to follow their passions and focus on what makes their heart sing, staying engaged is what they will do, whether that means a hobby, charitable cause, extended career, new late-life career, or combination of all the above.
For tens of millions of Americans, however, “The End of Retirement” will mean something much darker.
It will mean soul-sucking drudge work in a minimum wage job to try and make ends meet. This will be a forced reality by way of financial assets falling short and government programs failing to bridge the gap.
In some ways, the dark path (working for low pay until death) will simply mean reversion to an old trend. “Work hard until you die” has been the default mode of existence for nearly all human history.
In the big scheme of things, the 20th century concept of retirement had a very short lifespan — roughly fifty years or so, from 1970 to 2020.
The concept of pensions is actually thousands of years old. In the beginning, there were military pensions.
As far back as 13 B.C., the Roman Emperor Augustus initiated a pension program for Roman soldiers with twenty years of service. The program was at first paid for with regular taxes, and later with a 5% inheritance tax.
By the 16th century, various European countries, including Britain, had started offering pensions to military officers, and later to enlisted men. After the American Civil War, which ran from 1861 to 1865, the U.S. government started a pension program for wounded veterans and war widows.
The real turning point for retirement expectations came with Otto von Bismarck, the “Iron Chancellor” who successfully unified the German state.
In 1881, Bismarck proposed a payment program for society’s elderly. It took eight years for the idea to gain acceptance, and in 1889 the concept of government-funded retirement for all — not just the military — was born.
Bismarck was a political chessmaster. He didn’t propose the retirement concept out of the goodness of his heart, but rather to win support from the citizenry and head off his political enemies.
American corporations adopted the pension plan concept for similar reasons. By the booming 1920s, it was hard to attract and retain high quality workers. One way to do that was offering them pensions.
Then, in 1935 and during the Great Depression, the Social Security Act was passed.
When the Social Security Act was being debated, the proposed age was 60. This was deemed too young relative to what the government could afford, so the age was bumped to 65.
It’s notable that, when Social Security was enacted, American male life expectancy was roughly 58. They deliberately set the payout age farther out than most individuals were expected to live.
Social Security, and Bismarck’s old-age payments 46 years earlier, were meant more as a type of insurance than a payment stream to look forward to. You were expected to die first, but the payments would be there if you didn’t. Most pension plans worked off this assumption, too.
It was only in the 1960s, when American life expectancy started to rise significantly, that the modern concept of retirement was born. By 1970 or so, the idea was settling in that a retired individual could have a decade or two, or three, between the age they retired and the age they passed away.
One big reason for “The End of Retirement,” though, is the fact that long-lived retirements are not financially sustainable. Governments don’t have the resources to pay for such long-lived payment stretches, and in large part neither do most companies.
The costly version of a multi-decade idle retirement, with outside sources paying for it, will be looked back on as a relative blip in history, a short window that was open for half a century or so.
This is why companies switched some time ago from “defined benefit” pension plans, in which the company was obligated to make payouts at a certain rate, to “defined contribution” plans, where the responsibility to save is entirely with the worker.
This is also why a pension fund crisis is headed straight at us, with states like California in danger of becoming insolvent as a result of their impossibly generous pension fund obligations.
A multi-trillion-dollar pension fund bailout, not just for California but for multiple states, is an inevitable political reality. It’s just a matter of time.
Whatever happens with pension funds and Social Security — and the math in both of those areas already looks dire — we know “The End of Retirement” is at hand.
Whatever remedies the state provides will not be enough to bridge the gap for those who fall short in terms of financial assets. Meanwhile, the need to stay mentally and physically engaged, with activities and pursuits that enrich and stimulate, will be a happiness imperative for all of us.