Is retirement natural and inevitable?
The concept of stopping to work at a certain age is a fairly recent invention. Yet it’s time for the concept to be re-invented to better suit today’s circumstances.
have people always retired? The short answer is no, which then begs the question: when did we start retiring? Is retirement sustainable? Let’s first consider what retirement is. Generally, the word “retirement” has come to refer to leaving formal employment or stopping all incomegenerating activities. Legally, retiring refers to your tax status and access to your retirement savings in terms of the post-retirement investment vehicle options available.
So have human beings always reached a point in their life where they stop earning an active income?
Historically, we simply did not live long enough to even consider the possibility to stop working. In the 18th century life expectancy was only 35 and rose to just above 50 when Alexander Fleming discovered penicillin in 1928. Consequently, people simply worked as much as they physically could until they died.
In addition, saving was incredibly onerous as economies were dominated by a subsistence lifestyle; feudal-style taxes were paid to maintain the central powers rather than channelled back to the citizens and financial systems for saving were rudimentary at best.
How, then, did retirement come about and why at age 65? The person generally credited with “inventing” retirement as we know it, is Chancellor Otto von Bismarck in 1883, but his objective was mostly to increase his popularity with his people, and to stem the tide of rising Marxism in Europe. He announced that he would pay a pension to any citizen of the age of 65. This was well past the life expectancy of the population in the 1880s and therefore a relatively safe bet for the government purse.
In addition, the Industrial Revolution had sparked a trend of urbanisation, funnelling people out of rural life and into cities that were industrial and business-orientated. Scientific motivations were put forward where people were beginning to be classed as less productive due to the reduced physical ability of people to work after age 60 – the most notorious being the famous physician William Osler who believed the average worker is “useless” after age 60.
The rise of pension funds
Retirement therefore gained popularity as an economic necessity as people started living longer; unemployment took hold after the Great Depression in 1929 and young men returned from both the First and Second World War seeking jobs. In 1935 Franklin D. Roosevelt proposed the Social Security Act where workers had to pay for old-age insurance for their own future.
Retirement had become an economically attractive option to push the “elderly” out of work, making way for new job seekers, and leisure was motivated as the reward for years of hard work.
SA formally joined the retirement system of employer-based retirement plans with the passing of the Pension Funds Act in 1956. The defined benefit scheme was initially the preferred structure. However, though it was a great model in boom times, it represented a significant and possibly crippling risk for both employers and employees alike during difficult economic times.
Since the turn of the century, there has been a significant migration to defined contribution schemes, where retirement savings are completely separated from the employer and more responsibility shifted to the employee. The role of the employer has changed from a paternalistic one to that of a supportive facilitator. The employee, in turn, is given a more central role in determining their own retirement outcomes, necessarily taking more responsibility and risk.
Ironically, having both the time and the savings to fund a leisure lifestyle in retirement still is the exception rather than the norm. Currently only 2% of the working population can afford to retire and maintain their current lifestyle and only 10% can afford to stop working (retire) at all. Most people have no choice but to find some other means to create an active income. This is evidenced by the number of retirement fund members cashing in their retirement savings (roughly 80%) to make provisions to create incomeearning opportunities both pre- and post-retirement.
Fortunately, the nature of work opportunities has evolved from labour-based to knowledge-based jobs. In an agrarian-dominated economy, a person’s value was based on physical strength. When we were no