Years ago, I bought my brother a well-worn Denarius for his birthday
– the coin of the realm in ancient Rome. To me, it’s fascinating
that anything from that time period survived. It almost seems like it
shouldn’t have. Rome was the birthplace of many great inventions,
many of which were lost during the Middle Ages and had to be
rediscovered.
But one of the things
that wasn’t lost was the invention of the annuity. Annuities were a
way for the Roman government to pay its legionnaires for their
service after they had served their time. A legionnaire would
“retire,” then receive a lump sum of money equal to 13 times his
annual salary which would have been approximately 3,000 denarii. If
the soldier had received his pension in the form of an annuity, and
given the interest rates of the time, it would have been the
equivalent of 30 ounces of silver a year for the rest of his life. A
centurion received even more. There are also some accounts of
speculators selling annuities to wealthy citizens who could afford to
buy them. But for the most part, annual pensions were reserved for
Roman soldiers.
Why did the government
bother paying its soldiers so generously?
In Lives of the
Twelve Caesars, Suetonius explained:
“Moreover, all the
soldiers that were in any place whatsoever, Augustus tied to a
certain prescript form and proportion of wages and rewards, setting
down according to the degree and place of every one, both their times
of warfare, and also the commodities they should receive after the
term of their service expired and their lawful discharge: lest that
by occasion of old age or for want they should, after they were freed
from warfare, be solicited to sedition and rebellion.”
Caesar was concerned
about bored or disgruntled soldiers with no work who might revolt
against the Roman empire. His bet was to pay all soldiers a generous
sum of money, and hedge that payment with additional gifts of land
grants. The money and land kept the retired soldiers fiscally fat and
(for the most part) happy.
In essence, the
retirement package was designed to pacify the warrior. Given the
historical context, perhaps that was a wise move.
Even with these
generous retirement incentives, it wasn’t expected you would
“retire” from a career of fighting unless it was on the
battlefield. And most Roman citizens did not enjoy what we would call
“retirement.”
The
Birth Of Institutionalized Retirement
The modern concept of
institutionalized retirement was actually born in the late 19th
century in Germany, under the country’s first Chancellor, Otto von
Bismarck.
In 1881, Bismarck was
facing opposition from Social Democrats in the Reichstag. He believed
he could undermine the socialist movement, and get sympathetic voters
to leave the party, and also establish programs which he truly
believed in all at the same time by offering a social welfare program
with his name attached to it. His pitch to the public was simple:
“Those who are disabled from work by age and invalidity have a
well-grounded claim to care from the state.”
In other words, the
rationalization was that age itself was the cause of disability, and
thus once you attained the magical age of 70 you were due a
retirement package from the government. To justify this, it was
“discovered” that men over the age of 65 (and definitely by age
70) have a higher incidence of illness and death, as well as
cognitive decline, and therefore should retire on that basis.
Bismarck presented his
idea – which amounted to the government paying people to quit
working – to the Reichstag. This would have the side effect of
“creating” more jobs for younger people, thus pacifying both aged
workers and young socialists. It also undermined the Socialist
Movement, which threatened the stability of the German Empire.
It’s interesting that
his explicit justification for these programs was to create
incentives and establish control over the population. From Bismarck:
The Man and the Statesman, by Alan John Percivale Taylor:
“Whoever has pensions for his old age is far more easy to handle
than one who has no such prospect. Look at the difference between a
private servant in the chancellery or at court; the latter will put
up with much more, because he has a pension to look forward to.”
By 1889, the system was
put in place. The way it initially worked was all citizens over the
age of 70 would get retirement benefits, assuming they lived that
long. Government benefits aligned fairly closely to life expectancy,
with the implicit assumption that individual benefit payments would
not be payable for too long after a person retired.
This was the
first real model of a government-endorsed, sponsored, and
institutionalized retirement system. It wouldn’t take long before
Europe, and eventually the US, followed suit.
The
Birth Of Social Security
In the U.S., the Social
Security system was the framework for the modern retirement system,
which itself was inspired by Germany’s system.
Before Social Security,
some private pensions did exist in the U.S., along with municipal
retirement benefits in large cities, but these were somewhat rare.
For example, in the 1920s railroads, oil companies, and some banks
started promising limited old-age benefits for employees. These early
pension programs pegged retirement to age 65, but in total were only
offered to roughly 15{32c02201c4e0b91ecf15bfd3deecd875caca8b9615db42cfd45ce3d8de8d0829} of the labor force in the U.S. And these
pensions were given and withheld at the discretion of the employer,
so they were by no means guaranteed. There were also some old age and
disability pension schemes for veterans, which date back to 1776, and
a large-scale pension for veterans of the Civil War and their
families. But again, not all soldiers received pensions.
It was the U.S.
Government that finally institutionalized the idea of “retirement
for all” with the Social Security program. And, as in Germany, the
system was set up in such a way to implicitly (and sometimes
explicitly) manipulate, control, and otherwise “motivate” the
population.
Prior to Social
Security, retirement was not guaranteed, nor was it necessarily
desirable. And when state governments passed legislation to provide
money for old people in the U.S., many of the people who qualified
for benefits were reluctant to accept “welfare payments” or
accept any kind of financial help from the government. The result was
that only about 3{32c02201c4e0b91ecf15bfd3deecd875caca8b9615db42cfd45ce3d8de8d0829} of the elderly ended up receiving benefits under
state-run programs.
Once the Social
Security program was put in place, however, all that changed.
Everyone received benefits. And the idea of retiring from meaningful
productive work wormed its way into our culture.
Over the years, this
basic idea has evolved to mean different things to different people.
But the core of the idea is the same. It doesn’t matter whether a
person rejects the idea of Social Security, but accepts the idea of
private corporate pension plans, or government-created qualified
retirement plans (e.g. 401(k) plans, IRAs, SIMPLE, SEP, Roth IRAs,
457 plans, profit-sharing plans, cash balance plans, 403(b) plans,
etc.). The idea is all the same: quit working at some arbitrarily
defined retirement age. Spend your “golden years” relaxing, not
working.
The whole idea of
retirement is to passively accept resignation, to quit – to give
up.
This is a perfect
recipe to pacify the population, to make strong men weak, and to make
weak men weaker. And eventually, to kill the populace while keeping a
smile on its face.
This is where we got
The Company Man™ – a loyal corporate soldier, willing to do what
he is told for 40 years in exchange for a comfortable pension plan at
age 65 that will pay him to sit around all day and watch re-runs of
The Price Is Right and maybe play some golf on the weekends with
other retired company men, reminiscing about “the good old days.”
Even though the 401(k)
(and other similar plans) have effectively replaced the guaranteed
pension plan, and the March 2023 Social Security Trustees’ report
shows Social Security will become insolvent and require either a
massive 20{32c02201c4e0b91ecf15bfd3deecd875caca8b9615db42cfd45ce3d8de8d0829}-23{32c02201c4e0b91ecf15bfd3deecd875caca8b9615db42cfd45ce3d8de8d0829} cut in benefit payments to all retired people in 2033
or a massive increase in payroll taxes to keep the current system
going, people are still wedded to this idea of “retirement.”
OK,
So What Did People Do In The U.S. Before Retirement Plans?
Before everyone decided
it was a good idea to quit at the magical age of 65, people actually
worked for a living. I know this sounds weird, but hear me out.
Because meaningful, challenging, productive work is very good for
both your mind and your body.
Retirement wasn’t
something you wanted to do back then, either. It was something you
were forced to do because you either got hurt, got sick, or just
plain didn’t have the energy and ability to recover from a hard
day’s work like you used to, so you had to slow down. Slowing down
meant lower productivity and (possibly) less money, which is also why
you had savings. Savings might supplement a lower pay in your old
age, but it didn’t replace the need (or your desire) to work.
A large personal
savings also meant you could invest in yourself, your business, or
something (anything) productive for your future. In the old days, men
built big, expansive, business empires with their savings. They had
large families to support. They provided a good education for their
children. They increased their standard of living for themselves and
their spouse. They did this all through accumulation of personal
savings, large life insurance policies, and endowment policies which
gave them even more reason to keep working.
It seems like such a
bizarre idea today, but without a retirement to look forward to, you
have to keep working. You have to keep making future financial plans.
You have to save money and keep investing in yourself, your business,
your life, with an eye toward perpetual growth for as long as growth
is possible. And when growth is no longer possible, death quickly
follows.
Retirement
And Cognitive Decline
There were 55.8 million
retired Americans in the U.S. as of 2020. That’s a lot of people.
Think about it this way: 1 in 6 people in the U.S. are over the age
of 65. Compare this to 1920, when that proportion was 1 in 20.
It shouldn’t be
surprising that the risk of dementia before institutionalized
retirement was lower than it is today. There are even studies showing
that people who delay retirement have a much lower risk of cognitive
decline and of developing dementia. But you don’t necessarily need
studies to “prove” that retirement is detrimental to one’s
well-being, and that sitting around all day in a rocking chair
watching TV results in cognitive decline. You can observe what
happens to any independent person when they quit working, sit around
all day, and then eventually are forced to go live in a nursing home.
Those people decline both mentally and physically. And they do so
very quickly.
When my
great-grandmother stopped working, she did exactly this – sat
around all day, and didn’t do much of anything. I was only a
teenager then, but I still remember it very clearly. I loved my
great-grandmother very much, and her decline had a profound effect on
me as a young man.
She did not exercise
her mind or her body. Her decline was slow, but somewhat predictable
even back then. She developed dementia, became weak and frail, and
died in a nursing home having completely lost her memory of who her
family was. It was a terrible, terrible fate.
This is a fate that
awaits you if you give up on being a productive human being. Of
course, nothing in life is absolutely guaranteed. Perhaps you decide
to never retire but develop dementia in your 80s or 90s anyway. Guess
what? You probably would have developed it sooner if you retired at
65. The research on this looks pretty strong. The longer you keep
working, the lower your risk of cognitive decline. This squares with
my own experience and observations of other people.
Bottom line: If you
give up on life, it will give up on you.
