The Specter Haunting Old Age

Working Longer: The Solution to the Retirement Income Challenge

by Alicia H. Munnell and Steven A. Sass
Brookings Institution Press, 288 pp., $29.95 (to be published in May)

The Conservatives Have No Clothes: Why Right-Wing Ideas Keep Failing

by Greg Anrig
Wiley, 304 pp., $25.95

The industrial revolution is more than two centuries old, but the first rich nations to provide for the retirement of their elderly did not do so until roughly a century ago. Until the late 1800s, when agriculture still dominated the newly industrializing economies, old people, especially in America, usually owned their farms or passed them on to their children, who looked after them. Those who worked the farms were also often taken in. Suffering among the elderly existed, of course, but life spans were relatively short.

As workers were forced off the farms and into factories and mines in the second half of the nineteenth century, however, more and more of them had no assets to fall back on, and the poverty of growing numbers of the elderly turned into a crisis that could no longer be ignored. Many people had to go on working until they were physically unable, and for most the possibility of a comfortable retirement did not exist.

In the late 1800s and early 1900s, as industrialization more fully transformed the old farm economies, continental Europe and Scandinavia began to establish government-run pension systems. But the US and Great Britain were slower to react. The US did not establish Social Security until 1935, fifteen to twenty-five years after similar programs were begun in many well-to-do European nations, and fifty years after Germany established its pioneering state system. Even Britain established a public pension program a generation before the US did.

It was not until the post–World War II period, however, that many elderly Americans were able to maintain a standard of living in retirement that eventually came fairly close to the one they had as workers. At first, America’s Social Security benefits were small, but they were raised substantially over the next four decades, and financed by repeated increases in payroll taxes. At the same time, rapid US economic growth enabled corporations to expand their own pension programs aggressively. Some American companies, such as the Pennsylvania Railroad and American Express, had pioneered private pensions as early as the turn of the century, at first to encourage workers to retire. After World War II such company-sponsored pensions were designed to attract and keep workers in tight labor markets. The contributions to these plans were exempt from taxes. By the early 1960s the proportion of American workers with pension benefits had risen from 20 percent to more than 40 percent.

The corporate pension plans were far from adequate, however, often failing to invest sufficient funds to guarantee future benefits to all employees, imposing long job tenure requirements on workers before they qualified for their pensions, and using overly risky investment strategies. In 1974, the federal government passed new regulations requiring companies to correct many of these practices. The law also established the Pension Guaranty Benefit Corporation, a government insurance agency that would pay workers’ pensions if their companies failed.

By the 1970s, the combination of public and private pensions thus created an extraordinary new situation …

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