Where Did “Retire at 65” Come From?

Why do we retire at 65? Where does that number even come from?

Charlie Ellis explained it to Ted Seides on the Capital Allocators podcast as only he can – working backward with “why?” like a forever curious child (and he’s what, 80 years old now?!).

Here’s the gist:

Back when the Social Security Administration was created in 1935, they said full retirement would be 65.

Where’d they get the number?

In the UK they had settled on 65 as the retirement age after first trying to peg it at 70. They had realized if they went with 70, they’d be at odds with the current German railroad system at 65 and might have trouble attracting workers.

Where’d the Germans get it?

Now we have to go all the way back to the late 1800s and Otto Von Bismarck.

Bismarck wanted to build a railroad system to unite Germany into a modern, industrial economy and compete with the rising socialist movements. One of his big problems was how to lure workers off of their current jobs to come work for him (well, the Prussian government really). His solution? Lifetime employment.

All was going well. Trains and tracks were built and run. Things were functioning. But then there were the occasional accidents.

After investigating, they found that the primary source of the train accidents were older employees. The young guys would send the 50+-year-olds off from laying tracks to the less physically demanding job of manning the switches. They’d take naps, and trains would crash. It was a simple explanation.

What wasn’t simple was figuring out what to do with those lifetime employment promises.

The solution?

Pay them not to work. Retirement was born.

The math at the time suggested average life expectancy was only about 70, so after playing with the numbers (MBA-speak for “cost-benefit analysis”), they decided that 65 was the right age to get people off of the job.

Retirement. Paid NOT to work so as to not violate the legal guarantee of employment for life. And that’s where 65 comes from. A roughly 150-year-old cost-benefit analysis based on a much shorter life-span, preserving lifetime income and making railroads safe.

Perhaps if we talk about the history of words like “retirement” more, we can start to reshape the conversation altogether – both for the sake of Social Security as an institution and the regular people who struggle with retirement as an ambiguous concept.

History has so much to teach us.  Thanks Charlie.