Official Retirement Ages - A Relic of the Past?

Official" retirement ages are an outdated and redundant concept. Prior to 2011 it didn't make much difference what age was was chosen. But from January 2011 the number of people turning 65 started increasing. Why? It was the date on which the first baby boomers turned 65.

From then on, every day around the world, another about 50 000 people turn 65 ... and this will go on for the next 18 years! Pension funds will be under increasing pressure and governments have realized that they cannot meet their promises.

Conclusion … the existing "official" retirement ages are old fashioned and out dated.

What's so relevant about age 65 and why is it the "official" retirement age in so many countries?

Initially motivated by Bismark's political objectives the concept was first introduced in Germany in the 1880's. A number of his political rivals who were older than 65 so this was an easy way to get rid of them. It appears that in the world of political manipulation nothing much has changed in the last 130 odd years!

The initial proposal was easy to understand: "... those who are disabled from work by age and invalidity have a well-grounded claim to care from the state."

At that time life was tough in the industrial world, disease was rife and life expectancy was short. The majority of workers did manual work and were not bureaucrats, or office workers.

Another benefit of the system was that it was cheap as the average German worker died before reaching 65. This low cost benefit also applied to America in 1935 they adopted 65 as the official retirement age ... the average life expectancy was only 61.7 years!

When introduced social security was only available to workers in commerce and industry, that is, people who added real value. Over time it was expanded in steps to include nearly everyone else. The program had a dramatic change in the early 1970s when it was linked to inflation and adjusted upward every year.

It is claimed that when age 65 was proposed as the official age in America it was practically derived from two sources. The first, looking at ages used in existing private pension systems and from the age used by about 30 odd state pension systems. About half used age 70 and the other half age 65.

So using this very "researched methodology" (and possibly a touch of self interest?) the planners decided that age 65 was preferable to 70. Actuarial studies were then done which confirmed their gut feel. So based on these two factors, a simple observation about existing systems and the supporting actuarial outcome, age 65 was chosen as the the official retirement age for social security.

With an average expectancy of only 62 years and retirement at 65 the result was a cheap, self financing system with very low levels of payroll taxation.

Despite all the changes in the last 75 years this age was never reviewed. It was not politically prudent to mess with this. All that happened over the years was that more and more promises were made with little or no thought if these could ever be financed.

Based on the average life expectancy in the US increasing from about 62 years in 1935 to about 75 years today it would be reasonable to have this official age changed to about 78!

The cheap system introduced in 1935 has been polluted by politicians, labor unions and businesses without fully understanding the long-term implications. We now live with the consequences of meaningless retirement ages.


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