A Brief History of Retirement in America (Part 4)

This post is the fourth in a five part series that tries to put our notions of retirement in an historical perspective. Part One may be found here. Links to the other parts are at the bottom of the page.

1940 to 1975: The Postwar Era and the Selling of the Myth of Retirement

The 35 years from 1940 to 1975 finally saw retirement turn into the cherished institution it is today. After World War II, technology continued to transform the workplace. More than ever, the future seemed to belong to the young. The old needed to step aside. Social pressures to make room for the younger generation were pervasive and irresistible. Older Americans needed learn how to stop worrying and love retirement. Eventually, we all did.

World War II Changes the Game

During the Great Depression, millions of workers, young and old lost their jobs. But as Government policymakers struggled to put the country on the road to recovery, they focused exclusively on getting younger people back to work.

Someone had to be left out of the long, slow economic recovery. America could not keep all its citizens employed, and older people took the fall. Once a person turned 65, his work life was pretty much over. By 1940, 56.5% of men over 65 were no longer in the workforce.

But World War II put everyone back to work: young, old, men, women. Anyone who could work did work. The war put America at full employment again.

It also permanently altered our economy. To fight inflationary pressures, the Government instituted wartime wage freezes. Employers, desperate to attract and keep suddenly scarce workers, turned to fringe benefits not subject to the wage freezes. Instead of bigger paychecks, employees received paid health insurance and pension benefits.

The war lasted just long enough to get the fringe benefits ball rolling. In 1940, only about 12% of workers in the private sector had pensions. By 1945 that percentage had jumped to almost 17%. Fringe benefits were almost as good as money!

After the War, Older Workers Were Asked To Step Aside Again

As the war ended in 1945, millions of young men returned from Europe and Asia. They all needed jobs, of course. The women and older people who had worked on the home front during the war were expected to step aside for the returning veterans. It was the patriotic thing to do.

Corporate America reasserted its preference for younger workers. Mandatory retirement became an important mechanism for efficiency and cost control once again. And labor leaders, eager to impress younger workers, bargained for even more fringe benefits. In the end, Labor traded away the job rights of older workers for the supposed security of increasingly common pensions.

Fears of another depression also worked against older workers. Policymakers in government knew the peacetime US economy could not provide jobs for everyone. Taking older workers out of the workforce left more room for younger ones. New legislation encouraged private pensions with tax breaks that significantly reduced costs for employers. Earning restrictions on social security benefits also helped keep people over 65 out of the workforce.

Disgruntled Retirees Still Resisted

Barred from their old jobs by mandatory retirement at 65 and shunned by many employers even at 50, older workers struggled with their now truncated lives.

A very high percentage of retired workers remained dissatisfied with the notion of retirement. Many older people still believed that work was central to life. An alarming number even refused to apply for social security benefits. Surveys taken during the early 1950s found that up to 60% of workers nearing retirement age wanted to continue working. Public resistance to mandatory retirement was strong and seemed to be growing.

But mandatory retirement rules gave Corporate America, Labor, and the Federal Government something each wanted. All they needed to do was find some way to make the workers they were pushing off the cliff feel happy about it.

Selling the Myth

Faced with growing dissent, business, labor, and government interests joined forces to create a new definition of retirement.

Work was for the young, they proclaimed to older citizens. After years of hearing “Idle hands are the devil’s workshop,” older workers were now bombarded with a new message expounding on the joys of leisure. Retirement was not a tool for pushing aside older workers. It was a well-earned reward for years of dedicated service!

The term “Senior Citizen” gained currency, conveying the notion of a mature, responsible, disciplined person who knew his place in society (or perhaps more correctly, outside of it).

Insurance companies, seeing a huge market for life insurance policies that would help people prepare for retirement, were at the forefront of efforts to paint an idyllic picture of the joys of retirement. Organizations and magazines sprang up like weeds to encourage the blissful illusion.

It’s the Natural Order of Things…

Sociologists even pitched in to “help” by spinning new theories of aging that included the concept of disengagement, a hitherto unknown process whereby older people naturally withdrew from society as they prepared for decay and death. (I’m paraphrasing here.)

It was a patently ludicrous theory, but it served the needs of business and government, so it flourished for a time.

Of course, if some older people could not adjust to the unpleasant consequences of not working, society was more than happy to turn on them. Those who were unable to accept their new roles or who had not prepared sufficiently were dismissed as maladjusted, immature, or feckless.

Take It Easy, You’ve Earned It

The indoctrination program worked. By the late 1960s, the mythology of retirement had been completely assimilated into the American consciousness. Retirement became a full fledged industry.

Slowly but surely people stopped conceiving of work as a desirable or realistic alternative to retirement. Older people even learned to love the idea. Of course, they really had no other choice.

Protecting the Bounty

55.2% of private sector employees have pensions by 1975

Soon, nearly everyone saw retirement as the culmination of the American Dream. By 1975, over 55% of private sector employees had private pension plans available to them. The transformation was so complete Government focus shifted from encouraging retirement to protecting employee pension rights.

In 1974, the Federal Government passed the Employee Retirement Income Security Act (ERISA). The act protected the interests of employees in benefit plans, set disclosure rules and standards for pension plans wishing to qualify for favorable tax treatment, and created the Pension Benefit Guaranty Corporation to ensure that employees received their pensions if their plans went bankrupt.

Americans had so assimilated the notion of retirement as an entitlement that the Government was even able to turn its attention to the long neglected needs of middle aged workers too young to retire but often deemed too old for the workplace. The Age Discrimination in Employment Act of 1967, (ADEA) prohibited employment discrimination against persons 40 years of age or older. It was a toothless bill, but it marked the beginning of a trend that would continue in the future.

Because there was trouble ahead. A giant bubble called the Baby Boom was slowly inching its way through the American economy. As Baby Boomers began to reach the end of their productive lives, the game would have to change again.

Next: Part 5 1940 — 1975 to 2050: The Consequences Pile Up

Note: My primary sources for this series of articles are:

W. Graebner. A History Of Retirement: The Meaning And Function Of An American Institution, 1885 to 1978, New Haven, Connecticut, USA:Yale University Press 1980. 293 pp. ISBN 0-300-03300-1

D. Costa. The Evolution of Retirement: An American Economic History, 1880-1990. Chicago, Illinois USA: University of Chicago Press, 1998. 234 pp. ISBN 978-0-226-11608-2.

The Graebner book is a great read and I highly recommend it to anyone wishing to learn more about this subject. It is 30 years old, but it is still the definitive historical account of Retirement in America. It is currently out of print, but used copies are readily available.

The Costa book is also excellent. It is an economic history and takes a more quantitative approach.

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