The End of Retirement

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The End of Retirement

The concept of a comfortable retirement at the end of a long career is a relatively new phenomenon in the United States. Before people worked in factories, retirement didn’t exist. A farmer or blacksmith simply worked until he died on the job.

It wasn’t until 80 years ago that Social Security was enacted to provide a source of income for workers who reach the age of 65. But that situation was the exception, not the rule; in 1935, the average life expectancy was 61.7 years. Social Security was intended to provide an alternative to the poorhouse for people who were healthy enough to stay alive longer than most of their peers, but too frail to keep working.

As lifespans kept rising, the expectation gradually evolved that the vast majority of Americans will retire at the age of 65 and still have several years ahead of them, in relatively good health. By 2012, the average life expectancy had reached 78.8 years. And, among those who reached the age of 65 in 2012, they could expect to live an average of 19.3 more years.

For reasons that are familiar to Trends subscribers by now—the large size of the Baby Boom generation, the declining birth rates that have led to smaller generations since then, the economic malaise, and poor policy decisions—the concept of retirement can no longer be taken for granted.

Social Security is underfunded, paying out more than the program takes in. Corporate pension plans, once ubiquitous, have been cut back to the point that only 45 percent of working-age households participate in them. Individual defined-contribution retirement accounts, such as 401(k)s, which were designed to compensate for the shortcomings of Social Security and pension plans, aren’t getting the job done.

Data from the National Institute on Retirement Security show that working-age households have saved an average of $3,000, while those nearing retirement have saved only $12,000.1

It’s no wonder that nearly half of Americans are worried they won’t have enough to retire. A survey by the Employee Benefit Research Institute found that 43 percent of Americans don’t feel confident about their ability to afford retirement.

Among Millennials, a Gallup Poll found that only 20 percent believe that Social Security will be around when they retire, and 25 percent expect to have to work beyond the traditional retirement age.2

Unless a solution is found, spending on education, research, and infrastructure will be sharply reduced.

Fortunately, there are several promising ideas that could extend Social Security, as we’ll explain when we discuss the forecasts...

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