top of page

How Retirement Came to Be

Building financial assets to move from everyday work to retirement later in life is a significant priority for many Americans. Retirement is firmly embedded in today's culture, although it is a relatively recent notion. The average global life expectancy in 1900 was only 31 years. By 2017, that figure has risen to 72.2 years, primarily due to advances in modern medicine, sanitation, and working conditions. People had limited lifespans and were expected to work until death over most of human history. There was no driving cultural demand for retirement as we know it. Longer life expectancies, increased income, and population shifts associated with the Industrial Revolution made possible modern-day retirement. Surprisingly, the notion of retiring originated under the Roman Empire and ultimately evolved into its modern form.

The Beginning

One of the first accounts of retirement dates back to the reign of Roman Emperor Augustus. In 13 B.C., he established a pension program for a chosen group of Roman Legionnaires who had spent 20 years in the service. This early pension, funded by taxes, was an attempt to keep retired soldiers from rebelling against the Roman empire. Other military pensions may be found throughout history, generally bestowed by grateful rulers to victorious armies or navies. Because pensions were not widely available during this period, most elders relied on family care or alms from benefactors to stay alive.

Otto von Bismarck, the German Chancellor, invented our current notion of retirement in 1889. To prevent a revolt by young unemployed Marxists, he planned to pay individuals aged 70 and older to quit their job voluntarily. "Those who are disabled from work by age or invalidity have a well-grounded claim to care from the state," he stated. This project pioneered the concept of a fixed retirement age and extensive government benefits for older people who wanted to leave their job.

In the United States, the private sector pioneered the implementation of retirement benefits. The Baltimore & Ohio Railroad Company launched the first employee contribution program in 1880. They used a combination of business contributions and employee pay deferral to produce future retirement benefits, providing both parties a stake in the outcome. In 1875, the American Express Company developed the first corporate pension. Pensions have grown in popularity as a tool for employers to reward long-term loyal employees while also making room for younger workers. By the 1920s, defined benefit plans encompassed 84 percent of railroad workers. Long into the 1930s, railroad pension plans were the holy grail for retirement. Specific railroad pension programs even included housing, such as the Order of Railway Conductors retirement facility built in 1927 on Savannah's Oatland Island for elderly train conductors.

Social and Employer Retirement Programs

The devastation of World War I, the Spanish Flu epidemic of 1918, the 1929 Wall Street crisis and the Great Depression disrupted the United States' economy in the twentieth century. Company-sponsored pension plans were dropped at the same rate as individuals lost jobs, producing an unsettling economic condition for older Americans. Franklin D. Roosevelt's 1935 Social Security Act created federal retirement benefits to support more senior American employees. When Social Security was first developed, the official retirement age was 65, but the typical individual's life expectancy was just 58. The Social Security system has grown through time to include disability payments and benefits for a worker's family.

Following World War II, the United States' economy improved significantly, and pension benefit plans regained appeal as an essential employee recruiting and retention tool. By the 1950s, the famous picture of a retirement filled with recreational activities, golf, and sunshine had been firmly embedded in the mind of Americans.

The federal government began providing Medicare health coverage to elderly Americans in 1965 and took a significant stride forward in 1978 by establishing IRS code section 401(k). With the 401(k) introduction, employees were permitted to postpone income taxes on funds placed into retirement accounts. 401(k)s have gained popularity since their establishment, with around three-quarters of U.S. businesses now offering a 401(k) or equivalent plan. Traditional pension plans began to be phased out by corporations across the country as 401(k) plans rose in popularity. By 2013, less than 10% of big U.S. businesses gave their employees the traditional defined benefit pension.

Employees now have more control over their retirement funds thanks to 401(k) plans, but they also have more responsibility. To promote employee involvement, employers frequently provide matching contributions, automatic enrollment, and retirement savings seminars. Employees and companies have reaped 401(k) tax benefits. The federal government has encouraged financial health by providing extra retirement savings perks such as Roth IRAs and Health Savings Accounts in recent years. Life expectancy and retirement time have continued to increase significantly since the Social Security program's start in the 1930s. Because the long-term future of Social Security is unknown, it is more crucial than ever to take an active part in strategic retirement planning.

Retirement Today

In the United States, the notion of retirement is evolving in response to more remarkable sociological changes. Today's workers are unlikely to desire to retire and do nothing. A rising number of Americans in their 50s and 60s are making career changes away from well-paying employment and into "dream occupations." This professional change may not provide as much money, but it focuses on personal pleasure and joy. Many workers see such activities as a logical transition from a high-stress, high-paying employment to an active and rewarding semi-retirement doing something they enjoy. The second career is intended to better match individuals with their passions and ideals and provide purpose and meaning to their lives.

The approach of "Financial Independence, Retire Early," or FIRE, is a relatively recent movement among a select few younger American employees. The fundamental assumption is to save and invest aggressively (50 to 75 percent of your income) to retire in your 30s or 40s. Those pursuing FIRE usually do three things: keep their spending exceptionally low, make significant financial commitments early in their careers, and boost their income as much as possible to attain financial independence.

Schedule A Consultation with an Experienced Financial Advisor

Regardless of how our image of retirement develops over time, careful planning is always essential for success. Here at Fourth Avenue Financial, our priority is your overall financial success. We want to help you develop, implement, and monitor a strategy designed to address your individual situation and changing needs. If you are ready to start planning for your financial future, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online:

Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.

30 views0 comments

Recent Posts

See All


bottom of page