Retirement: How its history is relevant in these troubled times
The past can often help us understand the future, and in these uncertain times, I wanted to share with you a little about the history of retirement. I talk about this in some depth in my online program, ‘Dare to discover your purpose’, which is coming soon.
When nobody was old…
In the meantime, let’s go back in time, to a point in history where nobody was old. In the Iron Age, everyone was dead by their early twenties, so retirement simply didn’t exist: there was no need for it. Then came the Romans, who provided pensions to their military so that in old age they would not foment unrest or support a coup against the Emperor.
In the 16th century, Britain and several European countries offered pensions to their troops, starting with officers and gradually expanding to enlisted men. And in the United States, starting in the mid-1800s, certain municipal employees – firefighters, police, teachers, mostly in big cities – started receiving public pensions, too.
Back to Europe, where in 1883, Chancellor Otto von Bismarck of Germany had a problem. Marxists were becoming popular across Europe: so to help Germans resist their offer, Bismarck announced that he would pay a pension to any non-working German over the age of 65.
Bismarck was no fool. Hardly anyone lived beyond 65 at the time, but this offered people a sense of security and trust in their government. Bismarck not only co-opted the Marxists, but he set the standard for the age of retirement and established a precedent that the Government would pay people for growing old.
Making workers pay for their own old age
In 1908, the UK introduced the first old age pension and in 1912 the US introduced Sherwood Act, the first pension law for veterans. But the Great Depression made things difficult for the increasing large numbers of ageing workers. In 1935, a Californian, Francis Townsend, initiated a popular movement by proposing a mandatory retirement at age 60 in exchange for the Government paying a pension of $200 a month, an amount equivalent to a full time salary for a middle-income worker.
President Franklin Roosevelt was so horrified at this prospect that he proposed the Social Security Act of 1935, which made workers pay for their own old age insurance when they retired at the age of 65 – when the life expectancy for American men was around 60. As a comparison, life expectancy in 1960 went up to 70, and today it stands at 78 in the US and at 79 in the UK.
In the UK, Tory Chancellor Norman Lamont cut the rate of ACT, a tax relief measure, from 25 to 20 per cent in his 1993 budget. In 2000, Labour Chancellor Gordon Brown abolished ACT altogether, which was seen as a £5 billion tax raid on pensions.
Over in the US, the value of unfunded obligations under social security was approximately $5.4 trillion. In other words, this amount would have to be set aside today so that the principal and interest would cover the program’s shortfall between tax revenues and payouts over the next 75 years.
About 30 years ago, both the US and UK governments moved away from defined or guaranteed benefits pension schemes to defined contributions, with the objective of getting rid of their obligations and responsibilities.
A perfect pension storm
Much like the Roman Military Treasury, the whole pension business has been mismanaged. A perfect pension storm has been brewing for years: the longevity of the general population, the pension funds not growing sufficiently, and governments relinquishing responsibility. We now have a pension time bomb.
Even the word “retirement” is in disrepute, and “retirees” are shunned. Retirees even lie to themselves, as they don’t want to be seen as someone who is out to pasture. Many will deny it and even get angry, but there’s a sense of shame related to retirement.
So what can we conclude?
That no institution in history ever offered retirement pension to its population because it was intrinsically a good thing. They have offered it to their people because it suited their purposes so as to prevent losing power or losing profits, irrespective of the outcome on individual retirees.
Second, in any event, very few people have sufficient pension investments to retire fully or at all.
Third, it is clear that this industrial-era concept of “retirement” is in fact bad for your health. Studies have shown retirement increases the chances of suffering from clinical depression by around 40%, and having at least one diagnosed physical illness by 60%.
The solution is simple – and actually works for everyone, at retirement age or not, in this time of crisis.
Find out what you love to do and in doing it lose all sense of time.
Stay socially engaged, connected, and relevant even if at the moment that means online.
Embark on a sensible and enjoyable exercise regime. Stay safe, healthy and happy.
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