Retirement Changed the World, But Our Approach to Retirement Still Needs to Evolve


By Norton Reamer and Jesse Downing

Retirement funding has changed the world. Giant pools of capital – now totaling $24 trillion in the U.S. alone – provide a financial cushion for millions of average working people in their “golden years.” Moreover, pensions funds, defined contribution plans, public retirement funds and others invest their capital to earn a return for retirement beneficiaries: that investment program has become an enormous driver of growth for the economy overall.

It wasn’t always so, however, and the story of how modern “retirement” came to be should provide a sobering lesson for those who put off retirement planning and saving – and for politicians eager to tinker with, and even roll back, the modern systems it took such effort to build.

For thousands of years, average citizens were left entirely to fend for themselves. You worked until you died, or until your family had to support you. What was it like to grow old in this pre-retirement era? For elderly without independent means or family support, it was a later life of grinding poverty and social ostracism.

The English Poor Law of 1601 was one of the first efforts to legally establish who was responsible for elder care. According to the law, it was the children of the retirees, but that financial burden wrought all manner of familial conflict, and court dockets were often stuffed with claims against stingy, recalcitrant offspring. In the U.S. in the 1700s, rudimentary public assistance became available (food and firewood). That is, if you could convince those in charge that you were not simply fond of “idleness.” Retirement as we know it today would have been unfamiliar to the Colonials. From the early seventeenth to the mid-nineteenth century, there were very few public services provided for the elderly, and what little the elderly did get was subject to steady degradation. Poor elderly were relegated to almshouses, with other social outcasts: orphans and ex-prisoners.

In America, we didn’t see modern retirement emerge until the late nineteenth and early twentieth century. Urbanization and industrialization provided people with sufficient incomes and opportunities to live a more dignified retirement once they left the world of work. The development of sound savings structures, both public and private, made the prospect of the golden years a genuine possibility. Yet while private insurance-based programs were effective (and weathered the Great Depression well), those programs were limited to a small segment of the population. In 1937, efforts to create a broad public program ended up in the Supreme Court, where Social Security nearly went down to defeat – save for one swing vote. Only by a slim 5-4 majority did we see constitutional protection granted to one of the most important pillars in the modern retirement system.

Looking back at history, it’s easy to see that today’s modern system of retirement is a fledgling enterprise. The ability to have a recreational retirement has been around for less than 100 years. It was patched together in a series of public and private initiatives – and with the close Supreme Court ruling, the public component almost never existed. But now we have multiple vehicles for retirement savings and funding, beneficiary protections in the form of the Employee Retirement Income Security Act (ERISA), and an insurance program in the Pension Benefit Guarantee Corporation (PBGC) to backstop private retirement plans.

All should be well, but unfortunately we still have more work to do. Significant potential funding risks lie ahead. Insufficient savings, the freezing or closure of many corporate pension plans, and political tinkering with public programs all threaten the retirement security of millions of Americans. Meanwhile, we are seeing more off-loading of savings and investment responsibility to individuals. All these changes create a gap in the retirement picture, owing to the paucity of family retirement planning, rising income inequality, and the lack of investment savvy of the typical saver who is not (and cannot be expected to be) a professional investor.

On the retirement front, we have made great progress in a very short period of time, but continuation of that progress is not guaranteed. We could even backslide if we don’t approach retirement issues with greater urgency and discipline. It’s incumbent upon us all – individuals, politicians, regulators, corporate and pension executives, money managers – to prevent a return of the days of impoverished old age. Recreation sounds so much better, and with the right systems and supports in place, it is well within our reach.