The Past and Future of Retirement

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Our generation can’t expect to retire in the same way that our grandparents did, or even the way our parents will. What will it look like for us?

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Retirement as we know it began with the introduction of Social Security in 1935. It’s rapidly changing. Our generation can’t expect to retire in the same way that our grandparents did, or even the way our parents will. What will it look like for us? We’re not sure, but we can tell you what we know right now.
The History of Retirement
It’s easy to forget that quitting work and having free time when you’re older are pretty recent notions, historically speaking. So how did retirement get started?
• 1601. The English Poor Law of 1601 established a tax, distributed at the local level, to form a safety net and lay the groundwork for more modern assistance policies.• 1889. Germany instituted the world’s first old-age social insurance program. The retirement age was set at 70. During this period, especially in the United States, elderly workers were slowing down the increasingly common factory work where speed, repetition and efficiency were paramount. In addition they refused to quit working, thus keeping jobs from younger, more efficient workers. It became obvious that a retirement solution was needed.

• 1935. In the throes of crippling economic depression, more than half of U.S. states had pension programs, but they weren’t enough. The average benefit was just 65 cents a day. The Social Security Act was passed to establish a nationwide program to keep people out of poverty once they retired.

• 1970s. After many people lost their pensions from bankrupted employers, public pressure spurred Congress to pass the Employee Retirement Income Security Act (ERISA) in 1974. In 1978, the Revenue Act of 1978 was passed, and together they created the 401(k) and Individual Retirement Arrangement (IRA).
How Social Security Works
The gist of Social Security is that you pay some money from each paycheck (6.2 percent for annual income under $113,700) to Social Security as a tax, as does your employer (another 6.2 percent). When you retire (sometime between 62 and 70), you get a monthly check until you kick the bucket.
As of 2016, the average retired worker could expect to receive about $1,341 per month in Social Security benefits, or $16,092 per year. While it’s not a ton of money, it’s a lot better than nothing at all.
In a simple world, we could continue paying a little bit each check and know that, when the time comes, Social Security will be there for us. Unfortunately, that may not be the case. Every year, the Social Security Board of Trustees takes a look at its funding and projects how much longer it can pay its obligations. It’s projected that, because Social Security has taken in less than it has spent since 2010, the trust fund will be depleted by the year 2037. That is, of course, unless changes to the program are made.

Changes to Social Security aren’t unheard of. President Jimmy Carter signed legislation in 1977 to keep the program in the black, and in 1983 President Ronald Reagan signed changes including a gradual increase in the full-benefit eligibility age from 65 to 67.

The Future of Retirement
When the financial meltdown hit in late 2007, retirement plans that relied heavily on stock market investments, such as 401(K)s, were crushed. A study by the Pew Charitable Trusts found that workers born between 1966 and 1975 lost 45 percent of their wealth between 2007 and 2010.

Add those losses to the reality that just one out of three workers under age 35 has a company pension, according to It’s easy to see why. If things go unchanged, many Americans won’t be able to retire the way they wanted to — if they’re able to retire at all.

So what about tomorrow? Some say a long-term solution to evaporating retirements is found by shoring up and adding to existing Social Security infrastructure to better cover all Americans with a guaranteed benefit. Others think that states can find the answer, pointing to California’s recently passed legislation that will create the nations’ first state-level retirement savings plan for private sector workers. Some even argue that retirement itself is an outdated concept, and that healthier Americans holding less physically demanding jobs than in generations past should work as long as possible.
Whatever the future holds, the days when retired workers had a “three-legged stool” of Social Security, a company pension, savings and investments to lean on are over. New ways to pay for retirement will need to take their place, and it’s certain that we’ll need to adjust our expectations of what retirement is.

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