“There won’t be any Social Security by the time I retire!”
These were the words of my 38-year-old daughter. That is probably a commonly held view of many of her generation and younger. The BBC World Service presented a podcast recently called, “Is Retirement Over?” which traces the history of retirement (http://open.live.bbc.co.uk/mediaselector/5/redir/version/2.0/mediaset/audio-nondrm- download-low/proto/http/vpid/p045zvn6.mp3).
For most of human history, people worked until they dropped. We may be returning to that reality.
The idea of retirement savings can be attributed to Otto von Bismarck, the brilliant, autocratic and manipulative chancellor of the newly-united, late 19th century German Empire. His plan gave all German workers a small pension, which they could theoretically collect and retire with at age 70. The problem was, most people were dead by the time they were 50, but few workers would rebel against the state if it meant the loss of their pension. It kept them from revolting.
Eventually, the idea of a pension spread to other countries. The Danish government used pensions to keep young people from migrating to better opportunities in America.
During the Great Depression of the 1930s, old age pensions (Social Security) were introduced by the Franklin Roosevelt administration to get older workers off the job rolls so younger, unemployed workers could take their places.
Private companies took the idea from the government as a way to pay low wages but still keep their best workers from leaving for better paying jobs elsewhere. They could offer high benefits, but they would not have to worry about paying them until long into the future.
Meanwhile, new medical breakthroughs arose after World War II and increased life expectancy. Companies had not anticipated these advances, like antibiotics and surgical techniques for heart problems, better information on taking care of oneself and, especially, government regulations and a better understanding of tobacco’s harmful effects. More people survived into old age.
The “golden age of retirement” had arrived. People were living longer with more time on their hands. Many retirees moved to Florida and other warmer states. Golf courses and retirement communities popped up. The excess income for some caused an increase in cruise line tours.
But this longer life expectancy put a lot of pressure on pension funds. Something had to be done. Companies did the number crunching and knew the retirement costs were too high to continue.
Banks in the 1990s were the first to realize the increased pension risks. Other companies followed suit. The liability ran into the trillions of dollars, making many nations insolvent. Additionally, with the advent of the birth control pill, there were not as many children being born who might support the older generation.
As a result, corporations shifted responsibility and risk from themselves to the individual workers in the form of 401Ks and 403 B accounts. Workers would now bear the burden of managing their own accounts. Had pay been cut by 30 percent, riots would have occurred. But cutting retirement was too far off for workers to realize the implications.
The podcast noted: “The Western World is insolvent.”
“Retirement may have been a brief interlude” of two generations which is now ending, according to the BBC podcast. We may be returning to “Work until you drop.” Younger people should save more for their retirement, but most find it difficult to pay their bills now. The possibility is that future workers may have to work until their 80s – not an exciting prospect.
What is the future for the 20- and 30-somethings? These generations should rethink their retirement decisions and not copy their parents’ retirement model.
People may have to be willing to change careers and go back to school to get trained in different skills at different times in their lives. Perhaps they might work part time for a period to break up those 60 years of labor. Adaptation and flexibility will be mandatory. But for low-skill workers, the outlook is bleak.
The British philosopher Thomas Hobbes noted that life was “nasty, brutish and short.” The new reality may be that life without retirement may be “nasty, brutish and long.”
Perhaps my daughter’s analysis of Social Security is close to reality for her and for younger generations. At least my prodding her to save more for retirement has caused her to think about her future. She’s the one who sent me the BBC podcast.
I am grateful that I am one of those who will benefit from the “golden age of retirement” but I am concerned about my grandchildren’s futures. You should be, too.
