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Why 65?

Origins of the official retirement age and current trends and policies in other countries

March 1, 2004


Douglas Clement Editor, The Region

Among the many innovations we've adopted from Germany—beer, Volkswagens and kindergarten, for example—the idea of a government-sponsored social security system for the old is perhaps the most far-reaching. It was in 1889 that Germany adopted its social insurance program, designed by its chancellor, Otto von Bismarck.* The chancellor prodded Germany's emperor to introduce the idea to the German Parliament in 1881 with the words "those who are disabled from work by age and invalidity have a well-grounded claim to care from the state." And thus was social security born.

The idea was imported to the United States after the Great Depression and designed by the Committee on Economic Security, which launched the American Social Security system in 1935. It was the CES that selected 65 as the official retirement age, and many have claimed that the CES was again mimicking the Germans, who were said to have picked that age because Bismarck was 65 at the time he designed his nation's program.

But the Social Security Administration (SSA) is quick to disabuse the public of both myths. First, Bismarck was 74 years old when Germany adopted its system, and the German program actually set the retirement age at 70 initially and didn't lower it to 65 until 1916.

And second, according to the SSA, the CES choice of 65 was not based "on any philosophical or European precedent." Rather, after a survey of existing private pension systems, 30 state-run old-age pension plans and the federal government's newly established Railroad Retirement System, the CES found that the prevailing norm was 65. Their actuaries then calculated that at current life expectancies and reasonable levels of payroll taxation, 65 "produced a manageable system" that could pay for itself. "With all due respect to Chancellor Bismarck," claims the SSA's Web site, "he had nothing to do with it."

We're falling

Experts aren't quite sure, but it appears that the average retirement age in the United States declined in the 1990s, after having leveled off during the 1970s and 1980s. And while this seems at odds with the conventional wisdom that seniors are working more than they used to, statisticians point out that average age at retirement can fall even when age-specific labor force participation rates are rising. The latter compares a given segment of the population (an "age cohort") at two points in time, while the former tracks the average of the entire working population.

According to Murray Gendell, senior research associate at the Center for Population Research at Georgetown University, the average age at retirement in the early 1950s was 66.9 for men and 67.6 for women in the United States (see chart). Those averages fell to about 63 for men and women by the early 1970s, remained stable during the late '70s and 1980s, and then resumed their downward path throughout the 1990s, to 62 for men and 61.4 for women in the latter half of that decade. Since life expectancy for both men and women increased during that time, the expected years of retirement also increased. In 1950, a retired man could expect to spend 12 years in retirement and a woman 13.6 years. By 2000, a male retiree would have 18 years ahead of him and a woman 21.7 years.

Chart: Estimated Average Age at Retirement of Men and Women, 1950-55. 1995-2000

Source: Murray Gendell, "Retirement age declines in 1990s,"
Monthly Labor Review, October 2001

"The expansion of the duration of retirement has helped raise the proportion of the adult population living in retirement," observed Gendell. "As a result, the [Social Security] system is likely to require some combination of an increase in funding, an increase in the rate of return on assets, and a reduction in benefits."

While some economists and labor market analysts suggest that improved health, less physical work and the desire of baby boomers to continue working will reverse the decades-long trend toward earlier retirement, others are skeptical. Dora Costa, a Massachusetts Institute of Technology economist who has written extensively on the evolution of retirement in the United States, argues that the specific details of pension plans and social security programs "are not the primary forces driving the long-term trend." She also points out that the retirement age declined in the late 20th century even as the health of the elderly improved and work became physically less demanding.

Costa contends that retirement has become a social norm for Americans and that mass tourism, the growth of affordable retirement communities and reduced cost of transportation and communication with family have all enhanced the appeal of retirement. "Provided that retirement continues to be attractive and that income levels do not fall dramatically (and permanently)," she wrote, "the trend toward early retirement is unlikely to reverse."

Back to Bismarck

In Germany today, the official retirement age is still 65 as it's been for nearly 90 years. But most Germans retire earlier: In western Germany the average age people stop work is about 63 and in the former Communist regions it's about 62 for men and 61 for women.

With much older age distributions than the United States, most European countries face more immediate problems of supporting their retirees without bankrupting their economies, and policymakers have been struggling to reform pension programs. Germany's Chancellor Gerhard Schroeder has pushed for a halt to cost-of-living increases in the government's social security payments, and he's suggested that the official retirement age might eventually be raised to 67—a change he concedes "will not happen before 2010."

In Britain, the official age of retirement is 65 for men but 60 for women and civil servants. In 2010, the age for women will be raised to 65 and the government is also seeking to raise the age for civil servants to 65 by 2006.

The French National Assembly passed legislation last year maintaining the legal minimum age for retirement at 60, but increasing the number of years that employees have to contribute to receive a full pension to 40. Previously, government workers were required to contribute for 37.5 years only.

In most other European countries, according to the European Union, the official age at which most workers can receive a full state pension remains 65, but there are numerous exceptions. Women and workers in hazardous jobs, for instance, are usually allowed full pensions at earlier ages.

In the United States, the official age is rising, depending on when you were born. If you were born in 1937 or earlier, 65 is still your target retirement age for full benefits. From 1943 to 1964, it's 66. After 1960, keep working until you're 67. Your can start receiving Social Security benefits as young as 62, but the monthly check will be reduced.

*Yes, the capital of North Dakota was re-named in honor of Germany's chancellor in order to attract German immigrants and investors. The city was first called The Crossing, then officially named Edwinton, and finally, in 1873 it became Bismarck.

May 2004 fedgazette:
The Graying of the District continues with a look at whether gray might mean gold for district states and communities.

Douglas Clement
Editor, The Region

Douglas Clement was a managing editor at the Minneapolis Fed, where he wrote about research conducted by economists and other scholars associated with the Minneapolis Fed and interviewed prominent economists.