Retirement

Kerby Anderson

Although Congress needs to reevaluate various programs like Social Security, it is unlikely it will do so for two reasons. First, it would be politically unwise to even modify any of the so-called “entitlement programs.” It is the third rail of American politics. Touch it and you die.

But the other reason isn’t political; it’s cultural. Americans have an expectation of retiring at age 65. Morgan Housel has a chart in his book The Psychology of Money that illustrates this. The labor force participation rate for men age 65+ was 78 percent in 1880 and only dropped to 58 percent by 1930. But Social Security changed all that. Today the labor force participation for men 65+ is 27 percent.

Social Security wasn’t intended to provide a pension for retirement. When Ida May Fuller cashed in the first Social Security check in 1940, it was for $22.54 (that would be $416 when adjusted for inflation).

Even before Social Security was implemented, many in the Western world began to believe retirement begins at age 65. Germany was the first nation to adopt an old-age insurance program. This was 70 years before President Roosevelt proposed the Social Security system we have today.

Some brave politicians have suggested we might at least raise the age of retirement. As Morgan Housel reminds us that “It was not until the 1980s that the idea that everyone deserves, and should have, a dignified retirement took hold.” But also reminds us that the 401(k) didn’t exist until 1978, and the Roth IRA was not implemented until 1998.

Congress needs to address the financial concerns about the future of Social Security, but politics and cultural expectations make it hard to do so.

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