Sunday, January 15, 2006

retirement age, history of

The age of 65 was originally selected as the time for retirement by the "Iron Chancellor," Otto von Bismark of Germany, when he introduced a social security system to appeal to the German working class and combat the power of the Socialist Party in Germany during the late 1800s. Somewhat cynically, Bismark knew that the program would cost little because the average German worker never reached 65, and many of those who did lived only a few years beyond that age. When the United States finally passed a social security law in 1935 (more than 55 years after the conservative German chancellor introduced it in Germany), the average life expectancy in America was only 61.7 years. Of course, people who did reach 65 had a considerable number of years to live and to enjoy SOCIAL SECURITY benefits (see also LATER LIFE EXPECTANCY.)
Initially Social Security was limited in its coverage to workers in commerce and industry, but over the years the program was expanded and liberalized to cover widows, virtually the entire working population, and certain disabled people under age 65. The most dramatic change came in the early 1970s when the program was indexed to inflation-a plan whereby benefits are adjusted upward annually in accord with rising prices.
During the early 1980s, however, planners realized that the rampant inflation then underway and the growing older population, demanded reform of the system. Under pressure from the near-bankruptcy of the Social Security trust fund (reserves for benefit payments were down to three months), Congress found it necessary to raise the Social Security withholding taxes and to schedule increases in the age of eligibility for full retirement benefits-beginning in the year 2000 the retirement age for full benefits will be raised at intervals until it will reach 67 in the year 2027.
At the same time as Social Security benefits were becoming more generous, many large companies and government employers were using a variety of plans to encourage early retirement by their employees. Some of the inducements offered under these plans included payments of: lump sums equivalent to a year or more or post-retirement salary; part or full salary along with retirement benefits for a period of months or years; full retirement benefits for a specified retirement age before the individual actually reached that age.
No precise figures are available to show how many people have taken advantage of these early retirement plans, but almost half of all male and over half of female employees retire before age 65-and, it is possible that many of these people did so by taking advantage of company and government employee incentives to retirement. Social Security itself, of course, adds to company inducements by allowing people to retire at age 62 with 80 percent of the benefit that they would receive at age 65.
While it is well established that the overwhelming majority of the population retires willingly (some studies show that 98 percent or 99 percent of the population retires willingly, and others show that at most only 7 percent do so unwillingly), mandatory, or forced, retirement at specific ages has been considered highly objectionable. As a result, Congress in 1977 passed the Age Discrimination in Employment Act, barring forced retirement for nonfederal employees prior to age 69, and eliminated compulsory retirement for federal employees at any age. In 1986 the Age Discrimination in Employment Act was strengthened to terminate forced retirement at any age in all but small businesses (fewer than 12 employees), and for a few categories of workers-police officers, fire fighters, prison guards, airline pilots. College professors were excluded from its coverage for seven years.
There are now reasons to believe that the early retirement trend, quite contrary to all past expectations, may possibly reverse in the next few years. The reason is that the U.S. may experience a labor shortage beginning about the year 2000, when the large bulge of working age population brought on by the baby boom will begin to decline as Baby Boomers age and retire. Just how this will affect the long-term trend to early retirement is not yet certain, but it is quite possible that business and government will have such great needs for workers that they will be obliged to offer potential retirees special inducements-such as high pay, part-time work, and special benefits-to remain at work. Should this come about, the days of incentives for early retirement may become a thing of the past, and work combined with leisure turn into the pattern of life in the senior years.
Schulz, J. H. The Economics of Aging, 4th ed. Dover, Mass.: Auburn House Publishing, 1988.

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