Month: October 2025

History of the Retirement Plan, Part V

This is the fifth and final post in a series on the subject of retirement plans. The first four parts can be found here, here, here, and here. In this series, we have:

• • • Briefly reviewed the history of government-defined retirement models in the United States,
    • Introduced the tax-deferred model, and
    • Explained the difference between Qualified plans and Individual Retirement Accounts (IRAs),
    • Discussed limits to deductibility of retirement contributions, and also
    • Tax treatment of non-deductible contributions, and introduced:
    • The Roth model, and even:
    • Roth conversions.

Why Retirement Accounts?

Now that you are more familiar with the variety of government-defined schemes that exist to help you save for retirement, you might also consider that you don’t actually need any special government-endorsed type of plan in order to accomplish this.

Any brokerage or savings account can be used to save for retirement. You can also invest in real estate or closely held businesses, anything that will retain its value or grow over time. Some people who are more worried about governmental collapse than about inflation will even withdraw all their money in cash or use it to buy gold and put it all in a safe. You can even put money in a cookie jar or hide it under the floorboards, although we don’t recommend this. As long as you can live within your means and not run through all of your savings before you retire, you have in some way saved for retirement.

And while these simpler and more direct savings methods don’t come with any special tax advantages, they also do not carry any of the restrictions and potential penalties to be found with specially designated retirement accounts.

Why Retirement Accounts Now?

At this point we might also ask why it was only in the 20^th century that the government came to be so intimately involved in how we save for retirement, first with Social Security in 1935, and then in 1974 with ERISA and its later modifications.

One reason is that before the 20^th century, people did not so often outlive their working years, and so “retirement” was not as much of an issue. Another is that, before the Industrial Revolution, more people tended to live in larger, multi-generational family units and had more children. Such a family structure was in effect a sort of retirement plan.

People were also more likely to own their own land, small businesses, and farms, what Karl Marx would call their “means of production.” These means, together with the families as mentioned earlier, likely meant that you might not see any drop in earnings just because you could no longer work.

In his book The Revolt of the Elites, Christopher Lasch suggests that some type of idealized self-sustaining middle-class existence such as this typified what was thought of as the “American Dream” during the first century and a half of American life and thought. Even if it was not attained or even attainable by most, it had still seemed realistic enough to endure as an ideal.

It was the movement of Americans to the cities and company towns in the late 19^th century to seek wage employment that gave rise to the widespread indigent elderly population in the early 20^th century, which grew to unbearable dimensions during the Great Depression and eventually led to the Social Security Act.

And it was at this time, according to Lasch, that the ideal of the yeoman farmer or craftsman faded to be replaced by the present-day association of the “American Dream” with a life of ease and plenty or even Cinderella-like rags-to-riches stories.

Lasch suggests the original purpose of American education was not “social mobility” as we conceive it now, but a strengthening of existing families and communities through both business and personal growth.

While the Social Security Act helped to alleviate the material suffering of those who could no longer work, it did not restore their status as members of an ownership class. Social Security did not owe its inspiration to earlier American ideals, but to European statist models pioneered in the 19^th century by the Prussian philosopher G.W.F. Hegel and implemented in the German Empire by Kaiser Wilhelm III.

In the mid-20^th century, this model was partially privatized as many employers and labor unions promised their workers pensions upon retirement. But by the second half of the century, it was clear that these promises were no better than the solvency of the employer or the political favors that labor muscle could leverage.

With ERISA, we have begun to come full circle, regaining control over our own “means of production” even if for many of us, this is only in the form of fractional ownership of publicly traded companies and government-issued debt. We can at least decide how we want to allocate our share of capital and can even vote by proxy in shareholder meetings. We at last regain the prospect of being middle-class again, not only in the sense of being middle-income, but of being masters of a fate, which, even if not high and majestic, is not subject to the whims and political fortunes of our betters.

Whither Retirement Accounts?

A society of small claims wealth-holders, especially those who hold income-producing assets that they understand and can beneficially manage, is qualitatively very different than a society of pensioned, socially secured wage earners.

The former is not only a society of free citizens who cannot be intimidated by a government or an oligopoly that can threaten to withhold subsidies. It is also a society of true stakeholders in the country itself who are bound to make more responsible decisions about their collective future. These will not tend to be the kind of people who will sell their freedoms and their legacy at the ballot box for promises of free beer, as Edmund Burke has warned. It is also a society where knowledge and skill can be acquired piecemeal in the Jeffersonian sense, without credentials and without the pretensions of an expert class, to be brought to bear directly on the development of what is effectively each individual’s portion of the national wealth to manage with his own unique talents.

If we consider family ownership of publicly traded stock as a rough measure of small-scale ownership of the national wealth, there is a case to be made that we are already now in this new kind of ownership society. According to the Federal Reserve, in 2022:

• • • 58% of U.S. families (about 72 million families) held stock.
    • 21% of U.S. families (about 26 million families) directly held stock.

Yet in reality, most of this “privately” owned stock is in fact owned through funds concentrated in a very small group of very large fund companies. Of course, the fund companies do not own the funds, the individual account holders do, many of them through retirement accounts. Unfortunately, many owners of retirement accounts do not take much interest or an active role in managing their ownership positions.

If we consider fund control of equity Exchange Traded Funds (ETFs) as a rough measure of fund control of individually owned wealth, we might wonder to what extent individual account holders can meaningfully be said to own anything. How many even see themselves as “owners”? According to U.S. News & World Report, in 2024 74% of the Equity ETF Market is controlled by just three fund companies: Vanguard, BlackRock, and State Street Corp.

How strange this situation would seem to Thomas Jefferson. We might explain it to him thus: Most Americans still own their farms and trades, as it were. However, they are afraid to set foot on their own land or to touch their own work tools. They believe that only a gentry class of experts are qualified to do these things on their behalf.

Those of us who are lucky enough to still own farms and small businesses that we materially participate in and understand enough to pass them and the knowledge to run them on to our children, can still partake in the American Dream as Christopher Lasch describes. For the rest of us, it will be incumbent not only to save income earned from our chosen professions and invest it, but to take an active interest in our investments and be able to understand them well enough to pass them and the knowledge to manage them on to our children.