How the Germans Shaped Our Retirement Policy
As I type this, I sit in our home on a college campus where many faculty members have chosen to forego the traditional retirement age and continue doing what they love: teaching. Many continue on into their 80s, do as much as they can as long as they can.
But many Americans choose to call it quits on the traditional workforce at age 65. We call this retirement and its history is more interesting than you might think.
Few, myself included, know much about the history of retirement. Yet we know a lot about what we want it to look like: spending time with grandkids, opportunities to travel, and rest from many years of work. For most, 65 is the golden number. But do you know why 65 is the age? I didn’t until I started doing some research.
A couple big things happen at age 65:
1) Social Security – This is the age that Social Security contributions have typically been distributed.
2) Medicare – again, 65 is the magic age to begin receiving medical benefits.
3) Pensions – for those who has spent their lifetime working for a corporation, it is possible that you’ve built up a solid nest egg in the form of a pension. Pensions begin distributing at age 65.
But again, why is 65 the magic age for these things? Why not 55? Or 75?
The answer dates back long ago, even prior to President FDR’s signing of the Social Security Act on Aug. 14, 1935 which officially established 65 as the retirement age. As the retirement age was being discussed, America planners began looking at other countries for guidance. Specifically, our social security system was influenced by the national pension program set forth by the Iron Chancellor of Germany, Otto von Bismarck.[1] Bismarck original set the age at 70, but it was lowered to 65 a few years later. Prior to this, if you were alive, you worked.[2]
Social Security also did something else that was necessary in 1935: it offered a way out of the workforce for aging workers. This was important at the time as the unemployment rates were sky high due to the depression. So government officials believed they could kick start the economy by encouraging older workers to age out, creating space and jobs for younger unemployed workers.
Additionally, there was a belief that aging was also associated with a loss of productivity. Several scientific studies in the early twentieth century found a decline in mental capacity after age sixty. William Ostler, professor of medicine at Johns Hopkins, suggested in 1905 that all men should retire at age sixty because they had lost all mental elasticity.[3]
Slowly, over time, we have seen more older people leave the workforce. In 1880, 96 percent of all sixty-year olds were still in the labor force. By 1990? Only 66 percent of sixty year olds are still in the work force.[4] There are also many more older people alive today: 49.2 million Americans are currently 65 or older, as opposed to 7.8 million in 1935. But even more important than sheer numbers are the actual percentages: in 2016, 15% of the population was over 65, as opposed to 1935 when the figure was 6%.[5] We also live longer. A man turning 65 on April 1, 2020 can expect to live to 84 (87 for a woman).[6] In 1940, that figure was 78 for men and 80 for women.[7] All of these statistics create a unique challenge for a system built off of the young financial supporting the old, a system that was set into motion almost one hundred years ago with no changes but significant demographic shifts.
So should you wait until 65 to retire? Maybe, and maybe not. But you definitely shouldn’t do it just because everyone else is doing it. Know your why and be intentional.
[1] https://www.journalofaccountancy.com/issues/2018/mar/how-65-became-default-retirement-age.html
[2] https://www.theatlantic.com/business/archive/2014/10/how-retirement-was-invented/381802/
[3] https://www.nber.org/chapters/c6108.pdf, 11.
[4] https://www.nber.org/chapters/c6108.pdf, 12.
[5] https://www.ssa.gov/policy/docs/ssb/v48n12/v48n12p5.pdf
