Retirement plans constitute one of the key elements of every society's financial security system. Of course they are of utmost importance for the elderly, but they have great effect on the functioning of the national economy and everyone's welfare. Human life can be divided into three main phases: youth, productive years, and retirement. Youth is the period when a person, through education, acquires human capital, i.e., the ability to earn income throughout one's productive life. Acquisition of education, i.e., investment in human capital, is among the most important financial issues in a person's life. Another such issue is, of course, the accumulation of financial capital for retirement. Human capital acquired mostly during one's youth is gradually used up during one's productive life. Eventually one's physical and mental ability to work is depleted, and somewhere before or at that moment, one needs to replace human capital with financial assets allowing for comparable standard of living.



The problem of financial security in the late stages of life has assumed increasing significance as human lifespan expanded. In the Middle Ages, retirement protection was never a social issue, as few people reached the retirement age (defined as the age when productive ability is no longer available). On the other hand, in the twentieth century, providing for retirement became a very important social issue. As that century drew to a close, it also became a major challenge globally. For example, the life expectancy for a person aged 65, calculated on life tables for 1900 and 1950, respectively, increased by 25.28% in England and Wales and by 29.86% in France. This seems to be a permanent universal tendency; in the United States the life expectancy for an analogous person increased between 1960 and 1999 by 23.40%. The World Bank publication goes as far as to call it the Old Age Crisis. The gravity of the problem results from the fact that many of the world economies appear to be unprepared for increasing longevity of their populations, the resulting aging of their societies, and increased retirement needs.

At the end of the nineteenth century, new state-run retirement schemes were created, beginning with the German social insurance system created by Chancellor Bismarck. New private retirement also started around the same time. American Express created a company pension plan in 1875, and Baltimore and Ohio Railroad Company started one in 1880. In the United States, private pension plans grew rapidly during and following World War II, when wage increases were limited due to wartime wage and price controls, but collective bargaining for pension benefits was allowed. In 1974, another watershed event for pension plan history in the US occurred - the federal law named Employee Retirement Income Security Act was passed. This law created a requirement for qualified pension plans of having a fund appropriate for paying the benefits and making a regular payment of the plan normal cost, as established by a qualified actuary.

Most developed economies in the world have gradually evolved towards a system of what is commonly called a three legged stool in the retirement security system. The three legs in this concept refer to: state-sponsored, employer-sponsored, and individual retirement benefits. The first leg is commonly created with a system of social insurance, such as the United States Social Security System, or with a privatized mandatory system of individual accounts. In the United States, the second leg is represented by employer-sponsored pension plans of either the defined benefit or the defined contributions variety. The third leg in the US consists of the variety of personal retirement accounts, such as Individual Retirement Accounts (IRA), Roth IRA accounts, and others.