12/08/2014 08:02 am ET Updated Dec 06, 2017

Why You Can Thank The Neanderthals For Your Retirement Plan

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huffyi Ever wonder what cavemen did to afford retirement?

Best we can tell -- since early man's principal occupation was basically his own survival -- most of them died on the job and didn't worry too much about retiring. The Neanderthals are known to have cared for sick community members (and we assume those too old for hunting) by sharing food with them. And thus the idea of providing retirement benefits in an organized way probably entered our DNA, said no responsible scientist ever.

Truth is, the concept of an organized system of providing help to workers once they retire is a fairly modern idea. For the longest time, taking care of the elders in a community fell to family members (or tribe or clan or village). Our aging relatives lived with us and we nursed them until their deaths. It was what was expected of adult children, and one of the reasons why families were large.

But as younger members of the family unit began to drift away and scatter to destinations far away, the realization dawned on our collective society that maybe we needed a better way to ensure the care of the post-working elderly. Here's a brief history of our retirement system:


Modern-day retirement in the United States has three components: the government (Social Security), our employers (private pensions and 401ks) and private savings (IRAs and whatever we stash in our mattresses). All three have undergone massive changes in our lifetimes and there is no reason to think they won't continue to do so in the future.

The Social Security Act was signed by President Franklin D. Roosevelt on Aug. 14, 1935. The present system of monthly payments began in January 1940 with Ida M. Fuller of Vermont to be the very first person in America to receive an old-age monthly benefit check. The amount? $22.54, which wouldn't begin to cover the cost of a daily lift ticket in her home state today (although if she was 80, they'd let her ski for free.) The average retired worker in 2014 will get $1,294 a month. The maximum that a worker who retires at age 66 can get from Social Security is $2,642. But workers who postpone tapping their Social Security benefits are given an extra 8 percent a year until age 70. That means a worker reaching age 70 in 2014 could get a monthly maximum of $3,425, according to the Social Security website.

And Social Security may be one of those things, like BMWs, that we can thank German engineering for. The U.S. got the idea of giving the nation's workers some help in their older years from Germany. Germany was the first nation to adopt an old-age social insurance program in 1889, designed by Germany's then-Chancellor, Otto von Bismarck. Ignore the myth about how Bismarck set 65 as the standard retirement age because that was how old he was. Germany initially set age 70 as the retirement age -- and Bismarck was 74 at the time. It was lowered to 65 in Germany in 1916; 18 years after Bismarck died.

Cost of living allowances were first paid in 1975. Prior to this, benefits were increased irregularly by special acts of Congress. And yes, members of Congress contribute to Social Security, as does the President.

In 2012, Social Security was about 35% of the aggregate total income for people aged 65 or older. The way Social Security is structured -- today's workers are taxed and the money paid to today's retirees -- is at the core of the panic over whether the current demographic trend is a problem: There are more retirees about to collect benefits than there are younger workers to be taxed. And so the conversation about whether -- or when -- Social Security will run out of money is an important one. Opinions vary on the direness of the situation.

But, with what some see as impending doom with Social Security, greater attention is being paid to our pensions -- the second largest component of our retirement income. Retirement pensions paid by private employers typically come in the form of a guaranteed life annuity. The government also maintains a pension plan for its workers. The amount of someone's pension is determined by the number of years employed by that company and the amount of salary received (generally the last five years of wages are considered.)

Pensions were basically a (very nice) promise that your company would reward your decades of loyalty once you were too old to keep working. The problem, of course, is that the defined pension plan today feels more like something you'd find when you open a time capsule: a curious relic from the past that for the most part doesn't exist anymore. Private-sector pensions have largely disappeared for a number of reasons. It may not matter since many workers no longer stick around a company long enough to benefit from them anyway. But pensions began to bite the dust about 30 years ago, when large employers were looking to cut costs. They pointed to their rivals, domestic and abroad, who weren't strapped with paying workers' retirement costs and got creative about reducing their own obligations.

The end result was that many companies abandoned the idea of pensions altogether and instead began offering 401(k) plans, which shifted the investment risk and most of the expense to workers. When first pitched, the idea of controlling your own retirement fate appealed to many workers. But as many quickly learned, the stock market is a volatile place and to the inexperienced investor, not always a great place to earn as you learn. We like to quote Warren Buffett on inexperienced investors: “If past history was all there was to the game, the richest people would be librarians.”

As for the companies, the better ones provided a 3 percent match of dollars invested in their 401(k) plan -- and then left long-time employees with frozen pensions and offered new employees none at all.

How have those 401(k)s fared? Not very well in their first big test: the recession. As U.S. News & World Report reported, "For 401(k) plans to work well, individuals need to sign up, contribute a portion of each paycheck, appropriately invest their savings, and not take any money out of the plan prematurely." Until 2007, 401(k) participants had been gradually improving upon each of these behaviors. That ended abruptly in the recession. Account balances dropped, we saved less and fewer people enrolled. There was more borrowing and early withdrawals as job losses forced people to use their retirement savings for everyday expenses.

The third leg of retirement is our own savings. This is a party that many came late to. A nation of savers, we aren't -- although many are making great strides in this area as they see the sand in their work hour-glasses running out.

The non-profit Employee Benefit Research Institute reported earlier this year that 36 percent of workers have less than $1,000 in savings and investments that could be used for retirement, not counting their primary residence or traditional pensions, and 60% of workers have less than $25,000.


A Gallup study from 2013 showed that the average age at which U.S. workers retire has increased four years over the past 20 years -- from 57 in 1993 to 61 in 2013. But three-quarters of that upward shift occurred in the 1990s and early 2000s, according to Gallup’s data.

Gallup also found that workers’ expectations about when they would retire also shifted. In 1995, nearly half of working Americans – 49 percent – believed that they would retire before age 65, while 32 percent expected to retire at 65 and just 14 percent anticipated working past 65. Today, only 37 percent of workers say they will retire at age 65, while another 26 percent think they will work beyond that age. Only 26 percent envision early retirement -- before age 65.

Gone too is workers' confidence that they will have enough money for a comfortable retirement. That was at record lows
between 2009 and 2013, although it increased in 2014, according to the EBRI. Eighteen percent are now very confident (up from 13 percent in 2013), while 37 percent are somewhat confident. Twenty-four percent are not at all confident. This increased confidence is observed almost exclusively among those with higher household income ($75,000 or above).

So what does the future bode for the upcoming group of retirees? Working longer, living on less in retirement and hoping our kids also got the Neanderthal gene for showing kindness.



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