Click to enlarge
Chart
Source: The Motley Fool

 

“The entire concept of retirement is unique to the late-20th century. Before World War II, most Americans worked until they died.”

 
The quote above is from Morgan Housel. He has become the most consistently interesting writer on Motley Fool (a site I never really grokked).

I was reminded of this over the weekend when I finally got around to reading a post of his on the flight back from the West Coast. The chart above is from a longer piece on savings for retirement — and we all know all the usual memes on that subject all to well.

But here is the crazy thing we often forget: Throughout history, most people never really got to retired. Men typically were working at age 65 and beyond. In 1880, 78% of Men over the age of 65 were still working. Most men worked til they dropped. Only recently — since the 1940s — have less than a majority of over 65 year old men not been employed in some capacity.

That is an astonishing data point. Retirement as we know it today is a less than century old phenomena. The truth of the matter is that most Humans (particularly males) never had the opportunity to retire. They simply worked until they died. You could not work, but then you wouldn’t eat — leading to the same resolution.

The combination of Social Security, private pension funds, IRAs and 401(ks) are the funding mechanisms. They are quite imperfect, but what they require is tweaking, not undoing. Raise the FICA cap on Social Security, and that becomes financially sound. In IRAs and 401(k)s, you can replace high cost under-performing active funds with low cost passive ETFs and see an immediate improvement in returns. There are simple fixes for what are essentially actuarial issues.

One last thing: Note that after 120 years of the labor force participation rate dropping for the over 65 male, it has begun ticking up again. The key question is whether this is merely a post-crisis catch up caused by 3 crashes — Stocks, houses & stocks again — or whether it represents a fundamental change in society.

We probably won’t know for another 5 years or so, but it is worth watching closely.

 

 

Source:
The Biggest Retirement Myth Ever Told
Morgan Housel
Motley Fool May 2, 2013 
http://www.fool.com/investing/general/2013/05/02/the-biggest-retirement-myth-ever-told.aspx

Category: 401(k), Employment, Investing, Mathematics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Most Human Males Never Retired (they just died)”

  1. rd says:

    This is why I have been baffled on the focus on “post-WWII”, the past 30 years etc. as the norm that we might be deviating from. It has been very clear that the US in the past 60 years have been highly unusual in human history for a number of reasons.

    1. We have longevity now – we didn’t before. Antibiotics and modern sanitation have added a decade or more to the average human lifespan. Much of it is because we make it out of infancy now, but also people regulary get out of their 40s as well.

    2. Prior to the big unionizations that started in the 30s, work in the US was like the Bangladesh factories that collapsed or caught fire. Only a very small percentage of the population did not work on a farm or in sweatshop conditions. You worked until you dropped. Very few people were able to escape that. When Social Security was begun, the age was set so that very few people would use it because they would not be alive at that age.

    3. The US was the only game in town from 1945 until the 70s. Everybody else bankrupted themselves or was physically destroyed in WW II. It took decades to rebuild economies around the world. The US essentially had no competition for the first 20 years after WW II.

    It has baffled me why the US seems intent on letting infrastructure languish, undo safety nets, and is constantly looking for a new war to fight. We seem determined to return to the 1800s when life was cold, brutal and short. It is clear that we are in an unusually good place compared to the rest of human history – I would assume that we would want to do everything possible to sustain that, especially since it is likely to be a fragile condition.

    • willid3 says:

      well, maybe it was that the new corporate leaders decided that they would rather have a short term gain in wealth. at the expense of long term gain. which if you think about it, is the way they run their businesses isn’t it?

  2. Cato says:

    Similar to rd, it seems to me that the past 60 years or so will prove to be the outlier, and the recent tick-up is not a post-crisis change but the ending of a much longer lag between significantly increased longevity and the realisation that it is not only feasible to go on working much longer, but will be (is?!) a societal necessity.

  3. czyz99 says:

    rd,

    The recurring theme of Human history seems to be plundering. Other than that, yeah things would be fine.

  4. DeDude says:

    Your link to Wonkblog yesterday discussed how Keynes recognized that the increased productivity from industrialization could either be used to increase consumption or increase leasure time. Retirement is basically leasure time and it is only after the industrial revolution that it could be extended beyond the 1%’ers to cover everybody.

    However, the worst elements in the 1%’ers want to grab all the wealth and dial time back. They are trying to do that by political processes as well as via the Wall Street fleecing machine. They appear to be to stupid to realize that the only difference between a first and a third world country is a large consumer class that keep money circulating by consumption rather than stashing it away.

    Greed is blinding and I don’t see them getting any smarter or losing their grip on power. So I think we are in a trend towards more and more people being robbed of their ability to retire. I would not be surprised if the banksters manage to use the associated desperation to get social security privatized, such that they can also rob people of that. Then we will be back to the 1920’ies.

  5. James Cameron says:

    > Most Human Males Never Retired (they just died) . . . In 1880, 78% of Men over the age of 65 were still working.

    And generally, at a much younger age. There couldn’t have been many in the 65+ demographic in 1880, since in 1900 the life expectancy of a male in the US at birth was a mere 46.3 years:

    http://goo.gl/Hhw7g (CDC, Health, United States, 2007, p. 175, Table 27)

    • Okra God says:

      True but somewhat misleading. This is calculated from birth and hence gives disproportionate weight to infant mortality. Unfortunately, infant mortality rates were not well documented in the US in 1900. But if you made it past the age of 5, your chances of making it to 60 were pretty good; 70 not so much because of immmune system failure.

    • Okra God says:

      The tables here are helpful:

      Life Tables for the United States Social Security Area 1900-2100

      http://ftp.ssa.gov/oact/NOTES/pdf_studies/study120.pdf

      The table on page 14: “Figure 4a—Median Age at Death” indicates that in 1900, the median age at death for males was about 55.

      “Survival Function for SSA Population” on p. 16 also shows the effect of childhood mortality. The 1900 curve shows that approximately 20% of the population didn’t make it past 10.

  6. S Brennan says:

    But here is the crazy thing we often forget::

    If we did not “redistribute” work through varies schemes 8hr workday [vanishing], weekend [vanishing], 40 hour work week [gone], vacation [gone for the lower 70%], retirement [vanishing], prolonged schooling [vanishing]…et al, we would not have enough work for even the best educated…which if you keep in mind that 1/2 of all graduating engineers can not get engineering work upon receiving their degree…appears to be the case already.

    Forget the world flat on it’s back WWII crap, our export/imbalance did not exist before the war…what changed was FDR policies being implemented and slowly withdrawn. Economic shocks culminating in 1929-1934 were well known to those who bore the brunt, we have return to 19th century policies…sans mercantilism, our empire will fall just as Britain’s did…oh wait, there is not a younger friendly big brother to catch us when we fall.

  7. wordsmith says:

    Some of the responses above are drawing upon History. But people have a longer history than 1945, or 1871…..

    Actually, if you take a long enough view — of humans as a species — all of the above is totally wrong.

    Let’s make some basic assumptions:

    1. The human race (home sapiens sapiens) is at least 200,000 years old. That is to say, you can go back 189,000 years and meet a guy you might want to share some beer with (language differences notwithstanding). Or maybe a girl you’d want to take on a date. Or: Vice-versa

    2. Humans beings seem to have been, for the vast majority of our existence — right up to the present day — Hunter-Gatherers.

    3. Leaving alone for how long these folks lived, they were “Retired” right from jump……right from the first day they went to work (hunting and gathering).

    Here’s Wikipedia on the subject
    (from: http://en.wikipedia.org/wiki/Working_time)

    - – - – -

    Since the 1960s, the consensus among anthropologists, historians, and sociologists has been that early hunter-gatherer societies enjoyed more leisure time than is permitted by capitalist and agrarian societies;[7][8] For instance, one camp of !Kung Bushmen was estimated to work two-and-a-half days per week, at around 6 hours a day.[9] Aggregated comparisons show that on average the working day was less than five hours.[7]

    Subsequent studies in the 1970s examined the Machiguenga of the Upper Amazon and the Kayapo of Northern Brazil. These studies expanded the definition of work beyond purely hunting-gathering activities, but the overall average across the hunter-gatherer societies he studied was still below 4.86, while the maximum was below 8 hours.[7]

    - – - – -

    In other words: You didn’t need to “Retire” — for much of human existence. Why not? You were already “retired”. . .

    What changed? Agriculture. The amassing of “assets” (initially excess food, then things for which one traded the food). The fact that growing some extra food — and doing something with it called “Trading” — evolved, over thousands of years, into a global “industry” called “finance” . .. does not make Retirement a sin!!!

    So maybe (maybe) — if you take a long enough view, we’re just getting back to our roots

    • beaufou says:

      Very true. The Middle ages were also revisited by historians who reported people worked 3-4 hours a day and were off the whole winter for the most part. As for the ruling class, they were better of but actually did the fighting themselves when war called. A far cry from the modern hawks and elites.

    • willid3 says:

      some how this seems wrong when you thing about it. since the further back in time you go the longer it took to gather food to live. in fact almost all of the empires of old spent all of their efforts just to feed them selves, and that was 99.9% of their economy. it sort of like the idea that we are busier now than before. not really. its just before machines came to help grow food, only animals helped with that, but before that, every one had to pitch in. or people died

  8. RWLM says:

    Barry, I’ve been meaning to say this for some time but am only just getting around to it…
    It’s ONE phenomenON and
    SEVERAL phenomenA
    Just a heads-up…

  9. BennyProfane says:

    Man, I couldn’t imagine the hell of getting up early every morning, as one did all his life, and going out to farm at age 65, all day long. Think of how sore and beat up that man’s body was.
    I’m 60, and may work a few more years because I can sit on my butt in a climate controlled room with no super stress around me, although looking at that chart makes me appreciate my lucky place in history. Maybe I should just go play golf.

  10. WKWV says:

    I know the plural of anecdote is not data; but of my two grandfathers – one was a former farmer and the other was an attorney. The former farmer retired from law enforcement but died of a heart attack shoveling out his car to go check on livestock in 1941. Was he retired or not? He certainly kept busy. Farmers usually turned the hard work over to sons or farmhands as they aged, but were farmers as long as they lived on the farm.
    The attorney retired to live like a gentleman after corporate practice and founding a trade association. He died in 1932 in his early 70s. Most people didn’t earn enough to save for that kind of a retirement.
    On the census records for 1930 you would see some men listed as retired, but most likely they had sold or closed a small business or were supported by their children in the son or daughter’s home. Imagine being the sole support for your parents without pension income.

  11. nofoulsontheplayground says:

    The concept of pensions was introduced primarily by the railroads in the late 1800′s. The premise behind the change was older workers in their 60′s could be replaced by workers in their late teens or early 20′s, and the younger workers were often times 3-times more productive.

    The original intent of railroad retirement pensions was to get rid of older, less productive workers so they could get on with the process of dying. The pension payments were financially justified by the short life expectancy of the aged rail workers and the higher productivity of their replacements.

    Since that time the original system has been turned upside down, and we now have plans where people often can work less than 25-years and receive a pension stipend for 30, 40, or even 50 years.

    Even Social Security was originally structured so that according to the actuary tables, you were likely to die two years before you could collect.

    • willid3 says:

      well you could now justify it because the new workers get paid a lot less now days.

  12. lalaland says:

    In the 1880′s 80% of men still worked in agriculture, so the vast majority of those still working were working the farm – a very different lifestyle than a factory or office worker. The average man also lived with an extended family, who helped feed, bathe, clothe and provide for him as he got older. Doctors were probably fairly cheap since they were also fairly useless.

    I don’t think retirement would have been such an issue if it wasn’t for the way American families spread out. With no families nearby to support them the state had to step in; it’s the price we pay for a more mobile, adaptable lifestyle, and it’s a very reasonable subsidy considering the benefits. Now even our seniors are mobile, moving to the places it’s easiest to live at an advanced age. If we want the system to work (untethering workers in their prime from the responsibilities of caring for their aging parents so they can be more productive workers) we should be happy to pay in.

  13. jpmartin says:

    Never. Say. Retire.

    If you’re working and really dont like your job – then I can safely expect that either you want to quit and retire or you wan to quit and do something else. But what happens if you like your job, you have the energy to continue at it, you have the passion for it… will you ever retire?

    Jose
    P.S. which is a topic I’ve always been thinking about…
    http://jpmartin.com/never-say-retire/

  14. beaufou says:

    Do people retire or get retired, it becomes more and more obvious that the World is short of work for today’s population and it will only get worse. I disagree with the “The combination of Social Security, private pension funds, IRAs and 401(ks) are the funding mechanisms. They are quite imperfect, but what they require is tweaking, not undoing”. the problem is far more complex than “tweaking”.

  15. HarleyHoward says:

    Yes, this is true, BUT, why are we all who have nothing, but that which we have contributed to our own retirement, allowing the federal, state, and local employees, who are paid with our money (tax dollars taken from us) to continue sucking out our money until the day they die, at, at least, at amounts equal to what they were paid (or more) than they were making, (without A CONTRIBUTING A DIME!) to their own pensions.

    How did we let these blood suckers do this to us and why don’t we stop it NOW!?!

    • WKWV says:

      Federal and most local public employees that I am aware of contribute part of their pay to their retirement plans. They also pay for part of their health insurance.They pay federal,state, and local taxes. If you want world class service for minimum wage and no benefits you are demented.

      • DeDude says:

        I agree. HarleyHoward does not have a clue about the issue he seems so upset with. I guess it is so much easier to just make up a reality that you can get upset about than to find out what the facts are.

        Many public employees do not have social security and instead they and their employer are paying money into a pension fund. Typically each party pay less than 10% of the salary into that fund. That is more than your standard social security contributions and as a result pensions are funded such that they can give excellent benefits. There are still a few plans that allow retirement after 20 years of service regardless of age. However, when that is taken up in the media they fail to mention that the size of the pension depend both on years of service and age at retirement. So the 40 year old who get a lifetime retirement of $100/month is not such a big deal because he is just getting what he would have gotten if he had been privately employed and put the money into a private sector annuity.

        Personally I think that all public employees should be shifted into participation in social security and 401K plans. All that BS about how rich the public pension system is would evaporate if it was converted to something that would allow an apples to apples comparison.

  16. Malachi says:

    I love this F^%ing blog.

  17. jasons says:

    The idea of retirement is a funny one: “Hey, we’re going to sponge off society for 20 years — you workers suppress your consumption to accommodate us, OK?” It doesn’t really matter whether the retirees are on welfare or living off a dividend they “deserve” b/c they diligently saved for so long. It all boils down to the same macro dynamics.

    Below is a prescient SocGen view from 2010 of what’s now happening in Japan, where the demographics are working against the retirement paradigm: monetize the debt, create inflation, and screw the savers who will soon retire! Will we be next?

    “So the path of least political resistance will presumably be to keep yields at levels which
    the Japanese government can afford to pay, and to stabilise JGBs at levels which won’t
    blow up the financial system. This will involve the BoJ buying any/all bonds the market can
    no longer absorb, probably under the intellectual camouflage of “a quantitative easing
    program” aimed at breaking Japan’s deflationary psychology. Economists might applaud
    such a step as finally showing the BoJ was “getting serious about Japan’s problems”. In
    fact, it will be the opening chapter of a long period of inflation instability.”

    http://www.truthandbeauty.ru/wp-content/uploads/2013/04/Nikkei-63m.pdf

  18. Clif Brown says:

    There is also another group of those not retiring, the many who are anxious not about money but about how they will be able to bear the spouse all day every day or, most amazing to me, wonder what they will do with themselves when they have unlimited time. So there is a number of workers out there that are quite deliberately not retiring if they can avoid it, that has nothing to do with affordability, the first thing that springs to mind when looking at retirement statistics.

    It’s been thought that wealth and technology would allow human beings to have plenty of leisure time, what with all the labor saving devices etc., but I’ve never heard of anyone predicting that the human mind would be at a loss to occupy itself. Yet here we are with 1,001 gadgets and the Internet bringing the world into the home for free – yet boredom is a problem. Is it possible people can get so acclimated to being told what to do for decades that they lose all initiative?

  19. AtlasRocked says:

    Playwrite David Mamet wrote:

    “Healthy government, as that based upon our Constitution, is strife. It awakens anxiety, passion, fervor, and, indeed, hatred and chicanery, both in pursuit of private gain and of public good. Those who promise to relieve us of the burden through their personal or ideological excellence, those who claim to hold the Magic Beans, are simply confidence men. Their emergence is inevitable, and our individual opposition to and rejection of them, as they emerge, must be blunt and sure; if they are arrogant, willful, duplicitous, or simply wrong, they must be replaced, else they will consolidate power, and use the treasury to buy votes, and deprive us of our liberties. It was to guard us against this inevitable decay of government that the Constitution was written.”