Welcome to Rethink Retirement. A monthly blog series where I will explore different topics related to all things retirement. Each month I will answer questions and provide insight into this exciting and sometimes challenging time in your life.
My first blog explores the history of retirement. When and where the concept of retirement originated from, some early trends and where retirement is heading today. Happy reading.
Q1: When did retirement start and why?
It used to be “work until you die, or until you can’t work anymore.” Until the late 19th century, that was the old-age plan for the bulk of the world’s workers. However, it wasn’t until 1889 when German Chancellor Otto von Bismarck developed the first “social insurance program.” This program provided a very small level of support to aging workers who could no longer work, and to their dependents when they died or become disabled. This program began to catch on and eventually, albeit ever so slowly, made its way across Europe and to North America.
In Canada, Old Age Security was established in 1927 and paid out a meagre monthly benefit of $20. Moreover, the age of eligibility was set at 70, and people had to pass a humiliating means test in order to prove that they were in need of government assistance and could not provide for their own livelihood.1
It was not until 1951 that the government did away with the means test and made Old Age Security a universal benefit that paid out $40 a month to those 70 and over. Old Age Security was not intended as an income replacement measure. It was established a s form of income security for the elderly providing they met residency conditions.2
In the United States, Social Security came about during the Great Depression as the federal government was forced to deal with ever-increasing “aging dependency” matters. When Roosevelt campaigned for the presidency in 1932, his “New Deal” advocated programs that would make life better for ordinary citizens. In 1935 the “Social Security Act” was written into law. As a result, the system helped to reduce poverty among the elderly, going from 29.5% of those 65 and over living below the poverty line in 1967, to just 9% by 2010.3
At the time that social security was introduced, no one expected people to draw upon it for more than a few years. Nor was Social Security, like Old Age Security in Canada, created to fund a person’s desired retirement lifestyle.4
In his 1939 address to Congress, President Roosevelt explained that social security was intended “only as a base upon which each one of our citizens may build his individual security, through his own efforts.” As such, employees were expected to build their retirement wealth by setting aside personal savings and, where possible, through employer-sponsored pensions.5
Q2: Was Bismarck’s pension the first in the world?
Although Bismarck offered the first pension program that was widely available, it was certainly not the world’s first.
In 13 B.C., the Roman Emperor Augustus began paying pensions to Roman Legionnaires who had served 20 years. The troops’ pensions were financed at first by regular taxes, then by a 5 percent in heritance tax.
In the 16th century, Britain and several European countries offered pensions to their troops, starting with officers and gradually expanding to enlisted men.
In 1875, American Express offered America’s first employer-provided retirement plan. At the turn of the 20th Century, more companies began to follow American Express. Companies like Standard Oil, U.S. Steel, AT&T, Eastman Kodak, Goodyear, and General Electric all offered some sort of pension to employees.
Canada’s first public pension was the Old Age Pensions Act of 1927. This was a means tested pension for men and women 70 years and older who had little to no income. Under this act, applicants had to prove that their adult children were not able to support them. This act was replaced in 1952 by the Old Age Security Act and the Old Age Assistance Act. The Old Age Security Act (OAS) paid a flat rate to any person aged 70 and older who had lived in Canada for a minimum of 20 years prior to application. The Assistance Act helped people aged 65-69 whose income was below a certain level.
The Canadian Pension Plan (CPP) was created through federal–provincial negotiations in 1965, as a response to growing poverty among retired Canadians. Its target benefit at the time was to cover 25 percent of a worker’s average lifetime earnings, up to a stated ceiling on earnings covered.
Q3: What were some early trends that saw the rise in retirement popularity?
According the D.L. Costa’s book The Evolution of Retirement, the reduction in the average retirement age can be attributed to leisure activities. In 1941, 3% of men cited a desire to engage in recreational activities as a reason to retire. By 1963 this number increased to 17% and by 1982, the number rose to 48%.6
A look back to 1910 showed that leisure activities were confined to the rich who worked less hours and had more time and money to enjoy for example, an afternoon car ride in the countryside. But that changed by 1940, when many households owned a car and unions became a controlling force in the workplace. Travel also became more accessible to mainstream society once the railroad network was complete and highways developed. By the 1960s, air travel was becoming more common, which allowed people to travel from state to state, province to province or across the sea to discover new parts of the world.
Q4: What can we expect to see in the coming years as baby boomers are dominating the retirement playing field?
We can expect to see people living longer lives thanks to a focus on improved health, both nutrition and exercise, and advances in medicine. This means that retirement for many of the Baby Boomer generation could last upwards of 30 years. Baby Boomers have always challenged the status quo and retirement is no different. Baby Boomers don’t want the retirement their grandparents or even parents had. They are not satisfied just sitting on the front porch all day, reading the newspaper or going to the local coffee shop to meet a few friends.
Baby Boomers are a vibrant group and it shows in how they are living their retirement and with whom. They are living on their terms and they want this part of their life to be filled with happiness, meaning and purpose.
Financial planning and being prepared is by far at the forefront of retirement planning. Financial advisors are busier than ever ensuring their clients have good investments and a concrete financial plan when their salary comes to a stop. Companies have even started working with employees who will soon be retiring to ensure they know and understand how their pension will be distributed once they leave the company. Having enough money to live, do all the things you want, as well as plan for those unexpected contingencies is essential for a good retirement.
Apart for being financially prepared, a trend we are seeing with this group is an increasing desire for leisure, to explore and travel the world (before COVID that is). While the snowbird concept still exists, many more people are using the time in their retirement to visit parts of the world that they never got to see before. Many people too have children that live in different parts of the world and retirement is a good opportunity to visit them, even buy a property so they can be closer to them and perhaps their grandchildren.
Many retirees feel a loss of identity once their job or career comes to an end, and they have to find ways to get that back. People need to have a purpose in their lives, a reason for getting out of bed each day, a way to make a difference. Another trend we are seeing is volunteering. Volunteering can be done locally in a community or traveling to a developing country to help build capacity or infrastructure. Giving back and committing to a project or mission has given Baby Boomers back that meaning, purpose and identity that might have been missing in their lives. Some even say that volunteering is more fulfilling than their career ever was.
Finally, another trend we are seeing is more and more retirees are returning to the work force. This isn’t necessarily in a full-time capacity, but the notion of “seniorpreneur” is on the up and up. Many people are starting their own businesses in retirement and offering a service that is keeping them active, their minds sharp and bringing in a little extra money as well.
While these trends are nice to know, it’s important that you determine and take the time to plan out your own retirement. Ask yourself, ” Do I know what I want to do with my time in retirement? Who will I spend it with? Where will I live? What new adventures are on the horizon for me? Do I have enough money saved so that I can live the retirement I envision?”
There is a lot to think about for your retirement. Remember, you don’t have to do this alone.
Reach out to me if you need a little help. My mission is to see you live your best retirement life!
Jennifer Rovet, CPRC
Retirement Coach
Retire Ready Canada
retirereadycanada@gmail.com
www.retirereadycanada.com
Citations
1Laura, R. et al. (2018). Certified Professional Retirement Coach Course Manual
2op. cit.
3op. cit.
4op. cit.
5op. cit
6op. cit.
Comments are closed