Patterns Retirement

The earliest pensions in U.S. history emerged in both public and private contexts. In the public sector, Union Army veterans’ pensions began benefiting northern white males in particular before 1900 (Skocpol). By 1900, thirty-five percent of white males age fifty-five to fifty-nine were receiving Civil War pensions (Costa). And while ill health and unemployment were factors in these retirement rates (Graebner), the availability of these pensions probably motivated their recipients’ exits from the labor force. Other early pension schemes are traceable to the private sector, where they were developed by employers to control the age composition of their workforces and to ensure labor stability. The American Express Company initiated a pension plan in 1875 for incapacitated workers who had been with the firm for twenty years or more. And in 1884 the Baltimore and Ohio Railroad instituted a pension plan that, in many respects, anticipated the major structure of twentieth century pensions. It called for mandatory retirement at age sixty-five after a minimum of ten years’ service. Age, years of service, and salary level were the elements of the benefit calculation.

The first three decades of the twentieth century brought a slow development of retirement plans although the number of workers covered by pensions, health insurance, profit-sharing, and other employee benefits grew steadily (Jacoby). Industrialization consisted of more than production lines; it included the development of personnel management and the growth of unionization, both of which would shape the boundaries of the regular work career with negotiated rule structures regulating hiring, promotion, wages, and income maintenance (including health insurance and retirement). Over time, these workplace regimes created age-structured work careers (Henretta).

The passage of the Social Security Act in 1935 stimulated the more rapid growth of pension plans by establishing minimum standards. Its setting of sixty-five as the age of eligibility eventually made that age the most common age for retiring (Costa). And, somewhat paradoxically, wage control policies during World War II further stimulated the development of more elaborate employee benefit packages (termed ‘‘the hidden payroll’’ by the U.S. Chambers of Commerce in 1947) to permit employers to compensate their most valued workers without violating wage limits. These highly valued workers constituted internal labor markets whose long-term commitments to their employers were shaped, in part, by back-loaded pension plans. Such plans encouraged long tenure but also presented strong incentives to retire by a specific age. Unions also negotiated or provided for these plans for their workers. Referred to as defined benefit plans, they were, in effect, earnings predictably derived from formulas linking age, years of service, and peak salary levels.

The institutionalization of retirement is best characterized as the regularized exit from the workforce when income changes from wages and salaries based on employment to public transfers like Social Security and private assets including employee pensions. In industrialized societies, retirement has become a universal transition among workers and their families. However, it has changed as economic fortunes have varied, the political climate has shifted, and the structural and demographic compositions of the workplace have been transformed. These changes are addressed below.