The idea of “retirement” from working is a relatively recent one in the Western world. In fact, even at the end of the 19^th century, over three-quarters of men over age 65 remained active in the workforce. So what happened?

History of Retirement

Pensions

The greatest contributor to the idea of retirement in the United States was pensions.

Since well before the revolution, the colonies “provided pensions for disabled soldiers and sailors.” Later, during the war, the Continental Congress enacted legislation that provided pensions for disability, for men who gave long years of service and for widows of veterans.

During the Civil War (1861-1865), over 1.5 million men served in the Union Army, and a large percentage of them either died or were wounded. As a result, a much larger percentage of Americans were receiving military pensions, either as disabled or long-serving veterans, or through widow’s benefits.

The American Express Company offered the first private pension in the U.S. in 1875, and shortly thereafter, companies like the railroads offered pensions for workers who gave them long service (30 years) and reached an advanced age (70 years).

In 1889, under the leadership of German Chancellor Otto von Bismarck, Germany began administering the world’s first “old-age social insurance program . . . [for] those who are disabled form work by age and invalidity . . . .”

The Pension Act of 1890 granted retirement benefits to nearly all honorably discharged veterans over age 65, and by 1900, “about 20 percent of all white men age 55 and over received a Union Army pension.”

Over one million men served for the Confederacy in the War of Rebellion, and as a result, each of the “formerly Confederate states also provided pensions to its Confederate veterans.”

By the 20^th century in America, dozens of states, local governments and labor unions were paying pensions. And in fact, in 1926, Congress passed a law granting a tax advantage for funding pension trusts.

By 1930, 20% of all industrial workers were covered by a pension plan.

Social Security 

In 1935, Social Security was enacted:

To provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons . . . .

Effective, by 1950, 22% of people over age 65 received some form of state or federal old age benefit.

Retirement at Age 65 

Although it originally set the retirement age at 70, by 1916, Germany lowered its standard retirement to age 65.

In the U.S., before Social Security was enacted, a Committee on Economic Security was convened to iron out the details – including the retirement age. According to the administration:

The architects of Social Security arbitrarily selected 65 as the age of benefit entitlement. There was no scientific, social or gerontological basis for the selection . . . it was the general consensus that 65 was the most acceptable age. Members of the Committee . . . thought 60 was too low and 70 too high . . . . What private pensions were in force generally used that age, as did the Railroad Retirement System.

So that’s it. A group of guys (and one lady) simply pulled a number from out of their . . . hats.

Retirement after Age 65 

In 1983, Congress passed amendments to Social Security that gradually increase the retirement age (NRA) from 65 to 67 over the 22-year period from 2000 to 2022. Effectively tied to your birthdate, depending on the year you were born, you may retire at 66 years and 6 months (née 1957) or at 67 (née 1960 or later).

However, many, particularly fiscal conservatives, are concerned that our aging yet healthy population will put too much strain on Social Security, and they are advocating for increasing the retirement age even more.

According to David John of the Heritage Foundation:

It is time to increase the age at which American workers can receive Social Security benefits – both the full benefits age and the early eligibility age. . . . [These] ages should be increased simply to reflect the longevity increases that have already taken place . . . [and] even if the growth in future longevity increases, slows or even stops, advances since the last change in the program’s retirement ages justify raising the NRA to 68 by 2023, and the EEA to 65 by 2032. After those eligibility ages are reached, both the NRA and the EEA should be indexed to automatically rise along with longevity. 

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Bonus Social Security Facts:

• The lion’s share of the FICA most of us have deducted from our payroll checks is deposited in the Social Security Trust Fund. Since for many years more was collected than paid out, the Trust Fund has a surplus of “$2.7 trillion as of the beginning of 2013.”
• Unfortunately, since 2010, “Social Security’s total expenditures have exceeded non-interest income of its combined trust funds.” Over the past three years and into the foreseeable future, therefore, the program has run at a deficit ($55 billion in 2012) – and will continue to in the foreseeable future.
• The money to cover the deficit is taken from the Trust Fund surplus, which experts think will be depleted by 2033.