The evolution of retirement.

• Author: Costa, Dora L.

Not only are more men living past age 65 in America today than ever before, but American men also have been abandoning the labor force at ever younger ages. The retirement rate of American men over the age of 64 has risen rapidly from a mere 25 percent at the end of the last century to over 80 percent today. At the same time the very nature of retirement has changed. For most individuals retirement is no longer a time of withdrawal from all activities and of dependence on family and friends; rather it is a time of discovery, personal fulfillment, and relative independence. In the past, such a retirement experience was limited to the wealthy few who could afford it. Now it is an option available to the majority of workers.

That most men now can look forward to a period of personal fulfillment at the end of their working lives is one of the achievements of our century, but such a retirement is expensive, and financing it poses budgetary dilemmas. Approximately 80 percent of elderly households receive over half of their income from Social Security, and Social Security is facing a fiscal crisis. If men continue to abandon the labor force at ever younger ages, the crisis is likely to be even more acute. To understand whether retirement rates will continue to rise, we must examine how retirement has evolved from 1880 to the present. Retirement rates were rising throughout this period. In fact, 41 percent of the long-run rise in retirement rates occurred before the postwar growth of Social Security and private pension plans. In my forthcoming book, The Evolution of Retirement: An American Economic History, 1880-1990 (University of Chicago Press for NBER, 1998), I therefore investigate the factors that have fostered rising retirement rates.(1)

Income and Retirement

Retirement requires income, whether in the form of state-provided retirement or disability benefits, private pensions, income from other family members, or assets. Researchers have investigated the role that each of these income sources plays in the retirement decision, largely using cross-sectional data for the years after the 1960s. But, because 70 percent of the rise in retirement among men older than 64 occurred before 1960, only large increases in benefits could have enticed those remaining in the labor force to have withdrawn.

Previous researchers have not been able to examine the impact of income on the retirement decision prior to the 1960s because the necessary data has been...