Retirement: Does It Have a Future?

Can this 20th-century achievement survive the 21st century?

Someday, Americans may recall the 20th century as the heyday of retirement, when individuals left the workforce in their 60s with decades ahead in which their time would be their own. Life’s later years are apt to be very different in the future—for better or worse. A quick look at the past suggests why that’s so and what may be in store for us.

A Recent Phenomenon

Until the 20th century, retirement was virtually unknown. Few except the wealthy could withdraw from the labor force in their old age and live in comfort. Most people worked as long as they could. As they became less fit, they took less demanding, more meagerly paid jobs and turned to family and charity for help. They survived by patching together what historians call “an economy of makeshifts.”

During colonial times in the United States, what charity there was came from local governments. Some towns and villages doled out cash or food to those who were destitute, but others auctioned off the people themselves instead to the lowest bidder, who gave them room and board but was entitled to put them to work. By the 19th century, the poor were more often sent to the poorhouse, where older inmates often had to share a room with petty criminals, drunks or people who were mentally ill.

Pensions were not unknown. Governments had pensioned off soldiers since the days of ancient Rome. In America in the 17th-century Plymouth colony, men wounded while fighting the Indians could retire at the expense of taxpayers.

In the late 19th century, Germany became the first nation to provide government pensions for ordinary workers. Other European nations followed suit, but not the United States. A few American employers did begin to offer company pensions but that was rare, and in the 1930s, the Depression wiped out many of those initiatives.

The Birth of Social Security

The Great Depression was hard on all Americans but especially on older people. At one point, more than half of all men over 65 were unemployed and looking for work, and another quarter had been temporarily laid off. President Franklin Delano Roosevelt proposed a Social Security system both for the sake of impoverished seniors and to encourage older employees who did have jobs to leave the workforce to open up positions for younger people. Because workers would contribute to their own future retirement benefits through the payroll tax, Roosevelt assumed they would feel entitled to those benefits. As he saw it, that meant “no damn politician can ever scrap my social security program.”

The first checks went out in 1940, but in 1941 the United States entered World War II and benefits were frozen until 1950. In the late 1940s, the average single person received just $25 a month.

Meager as that income was, it had an immediate impact on the American family, according to economists Robert F. Schoeni and Kathleen McGarry. In a 1998 study using census data gathered between 1880 and 1990, Schoeni and McGarry found that in the early 1900s, 71 percent of older widows lived with an adult child, compared to just 20 percent in 1990. After Social Security kicked in, more and more widows chose to live independently.

It wasn’t because Americans were abandoning their aging parents. Since colonial times, both generations have preferred to live separately if they can afford to. Social Security made that possible for many.

Company Pensions

Government programs were only partly responsible for the golden age of retirement. After World War II, federal tax breaks and pressure from unions persuaded many American companies to provide pensions. Nearly half of all salaried and hourly employees had one by the 1980s.

At the time, workers were often required to retire at 65 or even younger.  In 1986, Congress banned mandatory retirement in most occupations. After that, eager to shed older workers because they could pay younger ones less, corporations added sweeteners to pensions to induce employees to leave. As a result, many Americans were able to spend their later years in comfort, if not in luxury. Most saw retirement as a reward for a lifetime of hard work. Those who were better off migrated to warmer climates or moved to retirement communities and filled their time with recreation, travel and volunteering. This postscript to employment could last 30 years because Americans were living longer and retiring younger.

Though the 1980s were the high point for traditional pension plans, another less-costly approach was already becoming popular with employers. Instead of establishing funds that sent retired workers a monthly check for life, businesses set up 401(k) plans and other types of pension accounts. The money in them—contributed by the worker, the company or both—was invested, and when employees retired, they received whatever was in the account, an amount determined by how the investments had fared. This shifted the financial risk from company pension funds to individual employees.

Rethinking Retirement

As the boomers—Americans born between 1946 and 1964—approached their 60s, they said repeatedly in surveys that they planned to work longer than previous generations had, both for financial reasons and for mental stimulation. They also stated that they would prefer to retire gradually or work part-time or from home. With demographers predicting a labor shortage as more and more boomers left the job market, it seemed likely they would get what they wanted.

Many professional women hoped to change the very nature of retirement. When they were young, they had fought for acceptance in a male-dominated workplace, and many enjoyed their hard-won jobs. Now they were less than thrilled at the prospect of a life of leisure. Some simply wanted to continue in their present jobs or occupations while others spoke of reinventing themselves, starting over in a different field and finding a new purpose in life. Books appeared, recommending new approaches to retirement, and in 2000 a national organization called the Transition Network began to bring professional women together in self-help groups to plan for their later years.

The economic meltdown of 2008 shrank older Americans’ retirement savings by as much as 40 percent even as the value of their homes cratered. 

Even before the first boomers reached their 60s, the model for later life had begun to change. In the 1990s, the percentage of Americans still on the job after 65 began to climb. At about the same time, many people stopped looking at retirement as an irreversible, all-or-nothing decision. In a 2009 study, Nicole Maestas of the Rand Corporation analyzed what happened to a group of retirees over the course of eight years during the 1990s. They were in their 50s when the study began. Though 40 percent left the workforce permanently, another 20 percent continued to work part-time and 40 percent “unretired” later. In most cases, those individuals had planned to return to work all along.

Then came the economic meltdown of 2008, which reduced older Americans’ retirement savings by as much as 40 percent at a time when housing prices had already cratered, shrinking the biggest long-term investment many families had. All bets were off. Suddenly, people who had been ready to retire were putting it off to rebuild their nest eggs, while others who had intended to keep on working were laid off and couldn’t find another job. In 2010, a Sun Life survey asked Americans when they expected to retire. They were as likely to name age 70 as 65. Meanwhile, many more individuals than expected were opting to receive Social Security benefits early, presumably because they needed the money.

The Future of Retirement

Retirement was one of the great achievements of the mid-20th century. Before that, the end of employment meant poverty for many older people.

Eventually, the job market and the stock market will recuperate, but one thing seems certain: the one-size-fits-all model of withdrawal from employment that dominated the 20th century won’t return. The very word “retirement” may well be permanently retired.

The nature of work has changed, thanks to technology and to fewer jobs that are physically demanding. We live much longer than previous generations did and most of us stay healthy for longer. In the future, we’ll probably have to pay for our bonus years with a new version of the old “economy of makeshifts.”

The new model will blur the line between work and leisure, much as part-timers and the unretired began to do in the 1990s. At whatever age seems appropriate, people will downshift into less-demanding jobs; some will plan ahead in order to do this. They’ll combine their earnings with their savings, Social Security benefits and perhaps a pension less generous than plans once were. Some will coast into this phase of life with no drum roll, no gold watch and few regrets, but others will have to have help from family and will scramble to survive. As a society, we need to ensure that old age doesn’t become synonymous with poverty, and that we don’t lose everything we gained during the heyday of retirement.