Personal Finance Essentials
A Brief History of Retirement
You’re on Your Own: How Pensions Disappeared and
Left 89% of Workers Responsible for Their Own Retirement
Pensions: The Original Retirement Promise
In the beginning, there was no such thing as retirement. If you were alive, you worked. During the American Revolution, the Continental Congress offered soldiers a monthly lifetime income – a pension – as a reward for their service after the war. The first private company to offer a pension plan was American Express, which in 1875 gave each retired employee a payment equal to half their annual salary, based on an average of the final 10 years of employment.
Pensions spread across corporate America. Workers paid nothing for them and simply had to stay with their employer long enough to qualify – typically 20 to 40 years. Employers valued them because they helped ensure productive workers would stay for an entire career. But the pension promised a monthly retirement income while leaving the company’s total cost unknown. That uncertainty would eventually lead to the pension’s decline.
Social Security: The Public Safety Net
The Great Depression changed everything. Tens of millions of people were out of work, and older Americans – unable to compete for physically demanding agricultural and industrial jobs – found themselves permanently and involuntarily retired. Congress responded with Social Security.
In 2025, approximately 69 million Americans receive Social Security benefits monthly, with the average retired worker benefit reaching approximately $2,071. Benefits are based on your 35 highest-earning years, the age at which you claim and your marital status. Filing at 62 permanently reduces your benefit. Waiting until 70 maximizes it.
But Social Security was never designed to be your sole source of retirement income. It will pay less than you hope, and you will likely be older than you expect before you are eligible. Most workers will never receive a pension. You must create your own retirement security.
The Birth of the 401(k)
In 1981, a benefits consultant in Pennsylvania noticed that the Revenue Act of 1978 had added a paragraph to the tax code allowing workers to set aside a portion of their paycheck into a separate account on a tax-deferred basis. He created an account for his own company – and the nation’s first 401(k) plan was born.
By 1982, major companies had 401(k) plans in place. By 1983, nearly half of the Fortune 500 were either offering them or developing them. Today, only 11% of the Fortune 100 provide traditional pension plans to newly hired workers. The other 89% offer 401(k) plans.
The shift was fundamental. A pension plan promises a monthly retirement income with an unknown cost to the company. A 401(k)’s cost to the company is fixed – but the employee does not know what the account will be worth. In one simple maneuver, companies shifted the burden of retirement security from themselves to their workers.
The Creation of the IRA
As 401(k) plans spread, a gap became obvious: to benefit, you had to work for a company that offered one. Congress fixed this in 1974 by creating the Individual Retirement Arrangement. Unlike workplace plans, IRAs are not run by employers – you create and manage your own account.
Today, nearly 44% of Americans have one or more IRAs, totaling nearly $19 trillion. Much of that money started in 401(k)s or other workplace plans and was later transferred into IRAs. IRAs have become a vital element of retirement planning alongside workplace accounts.