Once upon a time, there was no real social security in the United States of America. Oh, there were a few early 19th century attempts at public programs to limit poverty, especially for the elderly. However, all of these early programs, while well intended, did not flourish. But things changed as America entered the 20th century – the United States was in the midst of an Industrial Revolution.
The Industrial Revolution
The industrial revolution changed the very nature of our society and shifted our economy from a predominantly agricultural one to an industrial one with factories and mass production as the driving force. That brought a dramatic increase in urban living, since cities were where most of the new jobs were to be found. This, in turn, ushered in the post-WW1 “roaring twenties” – a time of great economic prosperity, increased consumer spending, and a shift from then-accepted social norms. Indeed, much of the U.S. population in urban areas was riding high in early 1920s America. But that was about to change.
The Great Depression
The crash of the U.S. Stock Market in 1929 triggered the “Great Depression.” There were, of course, other contributing factors, but the “Wall Street Crash of 1929” was a harbinger of more bad things to come. The 1930s saw about 25% unemployment, and about 10,000 bank failures leading to the loss of billions of dollars in depositors’ assets, resulting in skyrocketing poverty. This, in turn, led to much homelessness and despair, with men seeking work wherever they could find it (usually without success), and about 2 million men wandering aimlessly about the country as hobos. Over half of the country’s aging population could not sustain themselves financially, which led to considerable social unrest in the form of protests, strikes, and general disillusionment with our economic and political systems. This is the environment that Franklin D. Roosevelt inherited when he was elected President in November 1932.
The Birth of Social Security
FDR was inaugurated as President in March 1933, promising prompt, vigorous action, asserting that “the only thing we have to fear is fear itself.” This promise manifested itself in the form of a Committee on Economic Security, tasked by FDR in 1934 with finding a path to security from “life’s disturbing factors,” including poverty in old age. The result of the Committee’s effort was the Social Security Act of 1935, a 37 page legislative document which established a permanent national old-age pension system. With great fanfare, FDR signed the Social Security Act into law on August 14, 1935.
Although the initial Social Security Act, “Title II,” provided only for old age pensions, amendments in 1939 added dependent benefits for spouses and ex-spouses, surviving spouses, and minor children. The program was initially designed to tax 1% of the first $3,000[1] of an employee’s earnings, and a matching amount from their employer, to fund payment of Social Security benefits. These payroll taxes began in 1937, with the money therefrom placed in a special Trust Fund designated specifically (and only) for payment of Social Security benefits.[2] Although a few small lump-sum benefits were paid earlier,[3] payment of monthly Social Security benefits began in January 1940.
The first regular monthly Social Security check went to a Vermont schoolteacher/law secretary named Ida Mae Fuller, who retired from work at age 65 in September 1939. Miss Fuller’s first Social Security check in January 1940 was for $22.54, which was based upon program contributions of $24.75 from her earnings of $2,475 between 1937 and her retirement in 1939.[4] At that time, only about 224,000 Americans were receiving Social Security benefits.
Program Evolution and Growth
In addition to the 1939 amendments which first made benefits available to spouses, minor children and survivors of covered workers, the original Social Security program continued to evolve as years passed. The original program, at first not available to farmers, agricultural workers, domestic employees, or the self-employed, was expanded in 1954 to include those professions. Benefits for disabled workers were added in 1956. Other changes over the ensuing years included permitting early Social Security benefits at age 62 (1961), automatic cost-of-living increases (1972), and increasing the full retirement age at which full benefits are paid (1983). Taxation of Social Security benefits was also first included in the 1983 amendments and taxation of benefits was further expanded in 1993. Various other rules were also implemented over the years as needed to address the growing number of beneficiaries.
And as the U.S. population increased, so did participation in the Social Security program. Today nearly 70 million Americans receive Social Security old age, survivor, or disability insurance benefits, financed by about 183 million working Americans. From its humble 1935 beginning, Social Security has evolved to become a major source of income for most retired or disabled Americans, and their dependents. Indeed, without Social Security, more than 22 million Americans would now be living below the federal poverty line. And, along the way, that original 37 page legislation has been expanded to include over 2,600 separate regulations, explained in over 100,000 online pages at the Social Security Administration’s website.[5]
Social Security Today
Social Security is now in trouble. Again.
Early financial issues with the program were first dealt with in 1983, and again in 1993, when major program reforms were enacted. Those reforms, which included raising the age at which full benefits could be received and increasing revenue through taxation of received SS benefits, placed Social Security on a firm financial footing which lasted for multiple decades. In fact, the 1983/1993 reforms resulted in a Trust Fund surplus of almost $2.9 trillion by the year 2020. But things have changed.
Continued increases in U.S. life expectancy, as well as a major influx of “baby boomers” reaching Social Security retirement age, have strained the program’s finances. At the same time, the ratio of workers-contributing to beneficiaries-receiving declined to less than 3:1 (from about 16:1 in 1960). These dynamics, exacerbated by a declining U.S. birth rate, combined to result in Social Security’s income from working Americans being insufficient to pay 100% of all benefit obligations beginning in 2010. Fortunately, two other revenue sources (interest on Trust Fund reserves and taxation of Social Security benefits) kept the program operating in the black until the year 2021. At that time, the reserves in the Trust Fund were needed to supplement payments to beneficiaries, and depletion of the Social Security Trust Fund reserves began.
The average Social Security retirement benefit is now about $2,000 per month, which resulted in about $1.485 trillion in program costs in 2024. However, the total income received in 2024 was only $1.418 trillion, which meant that the Trust Fund balance of $2.788 trillion decreased to $2.721 trillion year to year. Ergo, the Trust Fund balance was reduced by $67 billion – a pattern which is forecasted to get worse in future years. According to the Trustees of Social Security, without Congressional reform the reserves in the Social Security Trust Fund will be fully depleted in 2034, which will result in an across-the-board cut of about 23% in everyone’s monthly benefit payment..
This is not new news to Congress! The Trustees have reported to Congress for many years that the Social Security program will face severe financial difficulties in the 2030s. However, Congress has continued to procrastinate about this issue, bringing us to where we are today: monthly Social Security benefits will be cut by about 23% in less than a decade, unless Congress enacts reform to restore the program to solvency.
Social Security’s Future
Social Security is often viewed by Congress as “the third rail” of U.S. politics. The partisan vitriol toward anyone who dares to suggest Social Security reform is astounding. Thus, most politicians avoid even discussing Social Security reform. Congress is also notorious for delaying action until the last possible moment, which is why Social Security reform has now become a critical issue. And the longer that Congress delays acting, the more difficult the reform options will become. The fact is that Social Security operating costs must decrease, or Social Security revenue must increase. Generally speaking, most Washington, D.C. Democrats oppose the former, while most Washington, D.C. Republicans oppose tax increases to accomplish the latter. A bipartisan solution likely lies somewhere in the middle, with concessions needed from both sides of the Congressional aisle.
The Association of Mature American Citizens (AMAC) has, for years, recognized this issue, and has developed a common-sense proposal to restore Social Security to financial solvency for generations. The heart of AMAC’s “Social Security Guarantee” proposal stays true to Social Security’s primary purpose to prevent poverty among America’s senior citizens. While this means that those with lower lifetime earnings may receive more, it also protects the integrity of earned benefits for more affluent Americans. A summary of AMAC’s Social Security Guarantee proposal can be found at https://amac.us/social-security-guarantee/.
But, in any case, Congress must address the issue of Social Security reform soon, putting aside partisan politics for the sake of all present and future American senior citizens. They already know how to do it, but currently lack the bipartisan spirit to accomplish the needed reform.
How Does This Affect My Social Security Decision?
The fact is, Social Security is here to stay. Despite Congress’ lack of effective action to date, they have no alternative but to reform the Social Security program soon. To allow the Trust Funds to run dry, precipitating a cut in everyone’s Social Security benefit would be political suicide. The only real question is what form the changes will take.
So how does someone decide how to plan for Social Security in these uncertain circumstances? Well, we generally suggest not panicking, because Congress will, eventually, address this problem. And, historically, all Social Security changes ever made provided protection from financial harm to those already eligible to collect benefits. Thus, we suggest not altering your claim strategy based on what might happen. Rather, we suggest you evaluate how Social Security fits into your retirement using current SS regulations as a guide. And take advantage of the free Social Security Advisory Service available at the AMAC Foundation – www.amacfoundation.org.
[1] The Social Security employee payroll tax today is 6.2%, equally matched by employers.
[2] The process of depositing Social Security revenue in a protected Trust Fund still continues today.
[3] The first lump-sum Social Security payment of 17 cents under the new program went to Earnest Ackerman, who retired one day after the Social Security program began.
[4] Ida Mae Fuller lived to be 100 years of age.
[5] SSA’s website can be found at www.ssa.gov
Subscribe
Sign Up for Our E-Newsletter!
Stay up-to-date on all of the topics you care about by subscribing to our quarterly newsletter emailed directly to your inbox!
SubscribeSubscribe
Sign Up for Our E-Newsletter!
Stay up-to-date on all of the topics you care about by subscribing to our quarterly newsletter emailed directly to your inbox!
Subscribe