Retirement: Life's Biggest Lie

Don't Fall For It!

Retirement - the last and final stage of life’s treadmill that we have been led to believe.

Finally, after all the decades of hard work and sacrifice, the time has come to stop working so that we can relax and pursue our passions.

Finally we can unwind and reap the benefits of our lifelong toil to play golf, travel, sightsee, go on cruises, and have fun into the twilight of our remaining lives.

If this utopian carrot is even remotely close to reality, we should be seeing elderly people with radiant eyes, brimming smiles, and jovial dispositions. Such a life seems so desirable and something to look forward to - who would not want to bask into the sunset of success without having to stress about work anymore, right?

I find it very odd that instead of seeing what should be happy retirees, I am more often than not greeted by eyes filled with emptiness, artificial smiles masking frowns indelibly etched into wrinkles, and a general sense of dragging. This is something I’ve observed in many countries, both in the East and the West - it appears to be a commonality that transcends culture. There were definitely outliers I’ve met who genuinely do seem fulfilled, happy, and full of life and energy - I would include my father in that group. However, these retirees were the minority in most countries I have visited. In fact, the few places I have been to where they were more common were in developing nations such as some parts of the Philippines or some of the remote islands in the Pacific. 

Why is this the case? How could there be such a mismatch between what we have been conditioned to expect and what appears to be a different reality?

In order to understand the discrepancy, we need to go back to the roots of the retirement itself, where it was conceived of, and how it evolved into what we understand it to be in today’s world.

One of the earliest incarnations of the concept of retirement was during the Roman Empire. Sometime around 13 BC, the Roman Emperor Caesar Augustus offered his army a retirement package worth about 13 times their annual salary if they served in the legion for 20 years and in the military reserves for 5 years thereafter. Funding this pension program cost nearly half the total revenue generated by the Empire and was not clearly sustainable - a mistake that was made during the very first attempt, and a mistake that continues to be made by modern governments.

The important question here is, what possessed Caesar Augustus to create such an expensive program that ultimately contributed to the financial collapse of the Republic? The answer is simple: Caesar was worried that the retired soldiers would rise up against him and the empire. The retirement program was his clever way to assuage and in essence, buy loyalty from his retired legionnaires. It was effectively an expensive insurance protection plan.

This is a critical fact that we must understand: there are always ulterior motives from the institution that is offering a pension plan. This is consistent with revenue and profit motives behind all companies. No matter how much spin and team building programs they immerse you with, companies are not your real family and they are not offering pension plans out of goodwill.

Fast forward to the 19th century and we see the next step change in the development of the concept of retirement when Otto von Bismarck introduced a retirement system in Germany. It was a radical program back then, because in those days, people simply didn’t retire. Basically, if you were alive, you were working. You were either on the farm, or if you were wealthy, managed the farm or some estate. So why would von Bismarck then introduce something that was such a departure from the norm? In his case, it was the socialist opponents who were pressuring him to do more for the people of this country. The solution was for the state to provide support for those “disabled by age” which ultimately became a powerful political tool. The age that was determined for people to disabled was 70, which was conveniently the life expectancy of Germany at the time. Interestingly, with retirement, most people still worked until they died.

Soon after in the 1920s, private companies in various industries from oil to banking in the US began offering private pensions. Most of these pension programs established the age of retirement to be 65 - a number that is still in the range of what companies establish as the retirement age today, even if life expectancy has increased by more than a decade since then. More on that later.

So we must ask once more, what is the ulterior motive for private companies to partake in this retirement and pension scheme? Clearly, the reason had to do less with physical health and more with economics as suspected.  To better understand the cultural context of the time,  we can reference a seminal speech that the esteemed Canadian physician William Osler gave during his valedictory address to the Johns Hopkins Hospital in 1905. In it, William Osler shared his belief that an individual's most significant contributions occur before the age of forty. According to Osler, reaching sixty years old should mark the time for retirement. He referred to the period between twenty-five and forty as the "15 golden years of plenty," emphasizing their importance. Workers aged forty to sixty were deemed tolerable but considered "merely uncreative." However, Osler asserted that individuals beyond the age of sixty became unproductive and should be retired or removed from their positions.

By now, it should not come as a shock to you that a highly regarded academic who is a product of the schooling system would assert such a rigid and deterministic framework to classify periods of life in terms of productivity. Such a mindset is the epitome of how we are supposed to think, so that we follow the path laid down except now the path being laid extends beyond schooling and into work and eventual “shut down.” 

Given this backdrop, and the link between the school and corporate ladders, it would make sense for companies to set limits to how high and how long one can go up the ladder. If employees’ mental facilities are deteriorating, it would not make fiscal sense to continue to pay the employees until they pass away due to loss in productivity. It would make better sense to provide a way out for them without firing them, and letting the next level of younger employees take over.  Pension plans also serve as a powerful recruiting tool, and can make the difference when hiring top talent. They are also a way to “lock-in” employees for the long term, similar to how deferred compensation does. There now is a set path and timeline, much like school. The only difference is, there is no further path and timeline once you graduate from work. Why would anyone want a path and timeline to utopia, right?

One unexpected development by the planners of retirement and pension plans is the rather large increase in our life expectancy. Globally, our average life expectancy has increased by over 10 years in the past century. This jump is a costly one for plans such as social security and other government programs to pay out until one passes away. It is in fact an existential problem in many indebted countries such as Japan and the US where the amount is parked outside of the balance sheet as an unfunded liability.  The only recourse is to raise the retirement age in order to reduce the amount paid out - or take larger and larger risks to make riskier bets to generate returns. This would make sense as people are not only living longer, but stay productive longer as well. 

There’s only one problem: private companies have not adjusted accordingly.

In fact, private companies have not adjusted at all. By the time an employee enters 60 years of age, there is very limited corporate pathway left. The only adjustment that has been made is to convert their pension plans so that they don’t pay out until death anymore and to calculate a static lump sum value instead. My father is an example of this change. Having worked for almost three full decades of his life at the Asian Development Bank, he qualified for the bank’s full retirement pension when he retired in 1995 at the age of 60. Back then, the bank offered a monthly payment until death or a lump sum payment. Smartly, my father opted for the former and continues to collect monthly checks from the bank at the age of 90 - a whole 30 years after he retired, and an entire third of his life.

Today, bank employees do not have this option anymore, and must collect a much reduced lump sum amount when they retire.

Watch this story coming soon to your home, regardless of what country and government you reside within: programs and eligibility will be reduced, and age requirements will be increased incrementally as institutions attempt to stave off the coming payout waves as people continue to live longer and longer lives.

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