Historically, it was German Chancellor Otto von Bismarck who first came up with the idea back in the 1880s. He decided to pay a pension to any person who lived beyond the age of 70.
Funnily enough, the average life expectancy at that time was around 40 years. That means hardly anyone ever reached the retirement age. Bismarck was a clever man!
While he had to make few payments, the idea of ‘retirement’ was motivational, keeping people working hard and looking forward to the time when they could stop working without the fear of destitute. And this is a practice that stuck.
It is still the norm in most societies for people to retire around 65 years-old and then receive a pension, either from the government or from an employer, or both. Given the improvement in life expectancy, governments are continuously talking about raising the retirement age. If they are as clever as Bismarck, wanting to minimise their cost while maximising their benefit, they will set it at 100 years!
The Cash Cows (Us)
Actually, it makes good sense for governments to think this way; they need to collect more money than they pay out. That’s because governments need income to finance their expenses. Paying for infrastructure, education, health, defense, etc., is expensive… And the main source of income governments have is TAX!
They usually tax individuals and companies. Corporate taxation provides less flexibility as companies may decide to move their activities to a different country. This is not desirable, as it may create unemployment and thus reduce tax revenue.
On the other hand, individuals are less flexible due to family ties, visa requirements, language barriers, and so on. That makes them the government’s cash cows. And so individuals get exposed to a wide array of taxation: income tax, GST, VAT, inheritance tax, stamp duty, etc… basically you get taxed on everything you own, buy or trade.
The bottom line is that governments need you to work until at least 60. Otherwise it would be impossible for them to meet their income needs. Tax loses its power when you stop working or spending, because governments no longer have access to your wealth (with the recent exception of Cyprus!).
Most government policies are thus aimed at achieving one goal: Keeping citizens working all their lives. This means either promising benefits to people who work for more than 40 years, locking-in funds until retirement, or encouraging people to take on debt by offering them tax breaks. For instance:
- Home mortgages: these ensure you keep working because you need a salary to repay your debt.
- Pension funds and life insurance savings: these lock your savings away until a set ‘retirement’ age and ensure limited disposable income.
- Tax incentives for long-term investments, e.g. tax breaks for investment properties: these also lock your savings away.
- Company paid health insurance cover and death benefits: these ensure you keep working to avoid additional expense.
The Broken Retirement System
In many countries, those in employment are financing the retirement for those who have worked hard all their life. It is a good system in principle, but there is a big problem: The aging population. There are now too many retirees and too few workers to fund them.
Since Bismarck’s time, life expectancy has increased dramatically. Thanks to progress in medicine, the current life expectancy in most developed countries is around 80 years, while the legal age of retirement has largely remained unaltered since the 19th century. Most governments are struggling to adjust to this situation; no one wants to work longer or pay more taxes. But someone will have to. The maths aren’t adding up!
I – like many others – believe that these systems will collapse. They are similar to a Ponzi/pyramid scheme where the newcomers pay for the oldtimers. As there are fewer and fewer people contributing to the system, it is just a matter of time before the system breaks down.
Yet, most of us still believe that working until 60+ is the right thing to do. Perhaps it is the hope of getting a government pension or the fear of not having enough to live off once we stop working. But we tend to adhere to these timelines and consider no alternatives.
The Monkeyism Alternative
As you know, Monkeyism is all about thinking outside of the box. It means questioning social norms, developing your own opinion, and making the right decisions for you and your family.
Once you understand that the economic, political and financial systems in modern societies are designed to keep you in the workforce from graduation until old age, you decide whether or not that system is for you. If it is not, and you are seeking an alternative, Monkeyism is for you!
Just remember: While we can tell you how the system works, and give you tips on how you might move outside of it, only you can make the changes needed to better your life.
In pure economic terms, you can retire either (A) when your passive income becomes greater than your expenses or (B) when your life savings cover your projected lifetime expenses. Whatever age you are when this happens can be your early retirement age. 25, 35, 45, 55. You decide!
Obviously, if you want to stop working, you need to have an income other than salary. And, luckily, there are lots of alternative income streams. For instance, revenue can be generated by savings accounts, owned rental properties, dividends from shares, etc… All of these investments will be explained in The Income section. The Savings category will also offer practical advice on how you can reduce your expenses. We usually focus on expenses first because everyone can save money!