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Retirement planning centers on building a financially stable future for individuals and couples after the end of their full-time careers.

That foundational principle is something that hasn’t drastically changed across the history of retirement planning. However, many other developments and concepts have appeared since retirement planning, and retirement itself, emerged as distinct ideas.

Understanding the beginnings of these ideas and how they evolved can help to provide valuable context for the present. Let’s take a closer look at the history of retirement and retirement planning.

Two binders labeled “Retirement Plan” and “Pension” sit on a cluttered desk.

An Extremely Brief History of Retirement as a Concept

Retirement, meaning an exit from the active workforce, has existed in various forms for many centuries. Some individuals have decided to leave their careers at points throughout history.

In the past, this exit was much more of an exception as opposed to a rule. It was only available to those with the financial means to stop working. However, this voluntary exit is similar in many other ways to modern retirement.

Retirement plans and benefits, although in different forms than the modern day, also have a long history. The Wharton School of the University of Pennsylvania explains that military pensions existed in the ancient past. This includes a variety of benefits, such as disability payments and payments to surviving families.

Retirement gained recognition as a more distinct concept in the 19th century. This distinction is closely related to the emergence of various early retirement plans.

The First Retirement Plans, Pensions & Social Insurance and Their Development

The Social Security Administration (SSA) explains that Otto von Bismarck, Chancellor of Germany, was the force behind the first national social insurance program in 1881. This program provided benefits for both the elderly and those with disabilities.

This benefit can be seen as similar in the big picture to Social Security in the US. At the time, it was regarded as revolutionary.

Retirement in general was not a common practice at that time, especially a financially secure retirement.

American Express offered the first private pension plan in the US in 1875, according to the Pension Benefit Guaranty Corporation (PBGC). Manufacturers, banks, and utility companies then also began to offer pensions. Some public employees had started to receive pensions in the same era.

Social Security was an important part of broader retirement planning in the past. It continues to play a valuable role today. Social Security became an active social insurance program in 1935.

The mid-1900s included several changes to laws and regulations related to retirement, as detailed by the Georgetown University Law Center. The next major events in the history of retirement planning were the introduction of individual retirement accounts (IRAs) and 401ks in the 1970s.

IRAs were created in the 1974 Employee Retirement Income Security Act (ERISA), according to the Investment Company Institute. The goal was to offer a retirement planning option to people without pensions.

IRAs also allowed for the rollover of retirement assets. That’s a crucial concept in modern retirement planning.

The 401k history timeline begins when Congress made the Revenue Act of 1978 a law, NASDAQ explains. In 1980, Ted Benna, a benefits consultant, realized that law could be used to create tax-advantaged savings plans. While not the intended use of the law, 401ks changed the history of retirement planning.

Was the 401k Never Meant for Retirement?

CNBC explains that many early supporters of 401k plans are surprised by their current usage. Those supporters didn’t expect 401k plans to be used as a primary retirement savings vehicle. They were intended to supplement retirement savings as opposed to taking over the role of pensions.

However, 401k plans are crucial to modern retirement planning. They provide access to a retirement savings and investing vehicle for a broad range of Americans.

From the History of Retirement Planning to the Present

Since these major events in the 1970s, many aspects of retirement plans and planning have changed further. In 2001, for example, catch-up contributions for 401k plans were introduced in the Economic Growth and Tax Relief Reconciliation Act.

In terms of retirement planning, the shift from pensions to other retirement accounts has made this process more complex.

A qualified retirement advisor has always provided informed guidance, of course. However, a pension supplemented by Social Security and investments is no longer the standard. This simpler system has been replaced in many cases by a more involved one.

IRAs and 401k plans have put much more emphasis on individual investment decisions. Managing those investments and finding strategies to reduce taxes, among other key actions, have only grown more important.

Retirement Trends to Keep in Mind

Individuals are starting to take a broader view of retirement. There is more interest in an earlier retirement, for example. The goal is to accumulate enough assets and make profitable investments to support an exit from the workforce before reaching the traditional retirement age of 65.

Similarly, some individuals have focused on establishing streams of passive income, outside of traditional investments, to support early retirement.

These goals mean an early exit from the workforce. However, they also leave early retirees without the support of programs like Medicare and Social Security. Effective retirement planning is especially important for early retirees.

Addressing possible healthcare costs, for example, can be far more complex without support from Medicare. That’s not to say early retirement is impossible or not advisable in all cases. Instead, it’s a reminder that retirement planning becomes even more critical with an early exit from the workforce.

Social Security, a key source of support for most retirees, will also likely face reform in the not-too-distant future. As income becomes less predictable, guidance from a professional retirement planner can become even more valuable.

Finding a Dependable Partner for Retirement Planning

One thing that’s never changed in retirement planning is the need to work with a qualified, trustworthy, and dependable advisor. That’s true whether you plan to exit the workforce at 65 or are aiming for an early retirement.

The retirement advisors at Dechtman Wealth Management can help you define your goals for retirement and build a plan for retirement investing. We take into account your wants, needs, and risk tolerance to create a personalized strategy. Crucially, we can also help put tax reduction strategies into place. That means maximizing not only what you earn, but what you keep as well.

Schedule your free assessment today.

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Sam Dechtman

As a wealth advisor at Dechtman Wealth Management, Sam is committed to always doing what is best for the client. Sam began his career working at large international asset manager in Chicago assisting clients with investment analysis, portfolio construction, and retirement income strategies. During that time, Sam would receive the CERTIFIED FINANCIAL PLANNER™ designation, signaling mastery in all areas of financial planning.