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Q: Origin of "magic" retirement ages 59 1/2, 70 1/2 ( Answered 3 out of 5 stars,   2 Comments )
Subject: Origin of "magic" retirement ages 59 1/2, 70 1/2
Category: Business and Money > Finance
Asked by: egnor-ga
List Price: $5.00
Posted: 22 Apr 2002 17:35 PDT
Expires: 29 Apr 2002 17:35 PDT
Question ID: 3007
The ages 59 1/2 and 70 1/2 are significant for many retirement plans and tax 
incentive programs (in the USA at least).  What is the origin of these ages?  
In particular, why the 1/2?
Subject: Re: Origin of "magic" retirement ages 59 1/2, 70 1/2
Answered By: drdavid-ga on 26 Apr 2002 11:44 PDT
Rated:3 out of 5 stars
The concept of "retirement" at some fixed age is a relatively recent
phenomenon which results from government social security programs. You
can read about the history of the nominal age-65 retirement age at the
US Social Security Administration website:

Apparently, the US standard was first established as a compromise in
1935 by the Committee on Economic Security (CES) charged with
developing guidelines for the new Social Security Administration. It
was based in part on a German precedent. Germany started the world's
first old-age social insurance system in 1889. It initially had a
retirement age of 70 which was later (in 1916) reduced to 65. In the
CES analysis, the "decision was not based on any philosophical
principle or European precedent. It was, in fact, primarily pragmatic,
and stemmed from two sources. One was a general observation about
prevailing retirement ages in the few private pension systems in
existence at the time and, more importantly, the 30 state old-age
pension systems then in operation. Roughly half of the state pension
systems used age 65 as the retirement age and half used age 70. The
new federal Railroad Retirement System passed by Congress earlier in
1934, also used age 65 as its retirement age. Taking all this into
account, the CES planners made a rough judgment that age 65 was
probably more reasonable than age 70. This judgment was then confirmed
by the actuarial studies. The studies showed that using age 65
produced a manageable system that could easily be made self-sustaining
with only modest levels of payroll taxation."

During the 67 years since 1935, there have been numerous changes to
the system. Some of these introduced other age thresholds. You can
read a variety of versions of the history at the SSA web site:

The first introduction of an age other than 65 in the SSA occurred in
1956, when disability insurance was added to the system. Initially,
disabled people between 50 and 65 were entitled to benefits. However,
the first use of age 60 as a retirement age in the US seems to date
back to 1875, when American Express adopted the first private pension
plan for employees with at least 20 years of service at age 60.

The first reference I could find to a reduced benefit at an earlier
age than 65 occurred when such benefits were extended to widows in
1965. The first reference to age 70 occurred the next year in the Tax
Adjustment Act of 1966, which "provided for payment of cash benefits
under OASDHI [Old Age Survivor and Disability Insurance] for all
persons aged 70 or over even if they lack insured status."

However, the mysterious 1/2 numbers do not appear anywhere on the SSA
site. Those numbers appear to derive from tax calculations by the
Internal Revenue Service. The earliest reference I've found dates from
the creation of the Individual Retirement Account in 1981.
Essentially, the rules established an approximate 10-year window about
the nominal age-65 retirement age. Before the window, any withdrawals
incurred an additional penalty tax; after the window, mandatory
minimum withdrawals occur. Fairly arbitrarily (I think), the
additional 1/2 year was added in the detailed calculations. While the
suggestion that I made in the Comment regarding mid-year and end-year
differences in calculation is plausible, it doesn't seem to be borne
out by the actual calculation rules as they have evolved. For example,
the IRS requires minimum withdrawals from an IRA beginning on April 1
of the year after you turn 70 1/2. I'm sure it all made sense to the
person who first drafted the rules, now that the rules have been
amended a few times by different people, the actual consequences
appear rather arbitrary.

You can see just how widespread the numbers 59 1/2 and 70 1/2 have
become in current US tax law by searching the Internal Revenue Service
web site as follows:

://"59 1/2"+OR+"70 1/2"

When I did this, it returned 273 specific hits!
egnor-ga rated this answer:3 out of 5 stars
I'm actually not sure how to rate this answer.  On the one hand, it's
very well written and goes into great detail on the origin and history
of retirement ages.  On the other hand, drdavid couldn't actually
answer the question posed, and can only guess that the decision to add
1/2 year was "arbitrary".  This question may be more difficult than I
anticipated; I can only expect so much for a $5 bid, after all.

Subject: Re: Origin of "magic" retirement ages 59 1/2, 70 1/2
From: drdavid-ga on 23 Apr 2002 10:00 PDT
I believe that the 1/2 comes from various mid-year vs. end-of-year differences 
in how an age threshold was specified. For example, "70 by the middle of the 
year" is equivalent to "70 1/2 by the end of the year." I further think that 
these thresholds came about as the result of new US Congressional legislation 
related to retirement (perhaps when IRAs were first created?), possibly in the 
early 1980s. Unfortunately, I don't remember the exact dates, and Congressional 
Records from that long ago are not available on line at this time. Perhaps 
that's enough of a clue for someone else to narrow it down further?
Subject: Re: Origin of "magic" retirement ages 59 1/2, 70 1/2
From: cm476-ga on 07 May 2002 12:02 PDT
I think drdavid is on the right track about the 1/2's; I haven't asked
an accountant but what I can conclude from the tax documents I've read
is that "a person can receive a benefit at age 70 1/2" means "a person
can receive a benefit the first calender year after (s)he turns 70".

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