Young or old, you’ve likely heard of Social Security. You may even have some experience with it while planning your retirement or helping relatives navigate the complexities of Social Security, disability, or Medicare.
But why was the Social Security Act created? And how does it work today? Let’s look at the Social Security history timeline and how the benefits could impact your financial future.
What is Social Security?
Social Security is a financial safety net for individuals and families. It can provide income for people who have lost their wages due to retirement, disability, or death.
The 1935 Social Security Act established the program. The Act allowed the federal government to take contributions from workers and employers and issue payouts to retirees, children, widows, and widowers.
Why was Social Security created?
Many believe the birth of the Social Security program came as a result of the Great Depression, which lasted from 1929 to 1939. The Great Depression spiraled from a stock market crash into the most serious economic downturn in the history of industrialized nations.
The Social Security Administration (SSA) cites the Great Depression as a catalyst for the program, but the government began working toward a social and income insurance program as early as the 1880s.
In the 1880s, populations were equally balanced between farm and nonfarm workers. The family-based structure of a typical farm economy provided stability. However, nonfarm workers relied on wage income, which proved to be unreliable.
As the nation industrialized and more Americans relied on wages and salary, fluctuations in pay stability and unemployment became concerning.
The U.S. economy didn’t have structures in place to handle income volatility or lost wages due to disability, death, or retirement, and the need for a social insurance plan began to grow.
As a result, Congress passed the Social Security Act to address a growing concern in the U.S.—the volatility of wage income. Indeed, the federal government designed the program to provide economic security for the aged by allowing workers to contribute regular payments toward their future retirement.
How did Social Security start?
You may have never known a world without Social Security, but it hasn’t always been around. A look at Social Security history facts shows the program began in 1935 when President Franklin D. Roosevelt signed the Social Security Act.
In addition to outlining benefits, the Act created the Social Security Board, which was later renamed the Social Security Administration.
The agency instituted Social Security numbers to register contributions and credits to the program from workers.
When did Social Security numbers start? Unfortunately, a record of who received the first Social Security number doesn’t exist. However, over 30 million numbers were issued by 1937—and the SSA has issued over 453 million as of 2019.
Where does Social Security get its money?
From the beginning, Social Security was funded by taxpayers—people like you and me. The history of Social Security states that Roosevelt insisted the program be self-funded.
Because it didn’t rely on federal revenue, Roosevelt famously said, “no damn politician can ever scrap my Social Security program.”
The federal government established the Federal Insurance Contributions Act (FICA) alongside the Social Security program. It’s what allows the government to collect what’s commonly called “FICA taxes.”
The original law required the employer and the employee to each pay 1% of the first $3,000 of earnings. The Act increased the rate regularly. By 1949, it was bumped to 3% of the first $3,000 of wages or salary. Since then, Congress has adjusted contributions according to changes in America’s workforce and the aging population. Today, the worker and the employer each pay 7.65% from every paycheck to FICA taxes.
Social Security benefits over the years
The first Social Security benefits in 1935 were designed for retired workers. Starting with the first benefit payment in 1937, retirees age 65 or older would receive continuing income.
It was expanded in 1939 to include dependents and survivors of workers who retire, become disabled, or die prematurely.
Congress has adjusted the monthly benefit amount over the years to keep up with the cost of living. But that’s just one example of how Social Security has changed over the years.
Today, the Social Security Act includes several programs:
- Retirement, survivors, disability, and unemployment insurance
- Medical insurance for the elderly, disabled, and those with end-stage renal disease
- Prescription Drug Benefit and help with Medicare Prescription Drug Costs
- Supplemental Security Income
- Special Veterans Benefits
- Public assistance and welfare services such as maternal and child health, child support enforcement, food stamps, medical assistance, and more
According to the SSA, “Social Security is one of the most successful anti-poverty programs in our nation’s history.”
Social Security benefits and your financial future
Social Security has been around for nearly 90 years. You likely receive Social Security benefits yourself or know someone who does. So, was the Social Security Act successful?
The SSA certainly thinks so. But what does Social Security mean for your financial future? If you’re like many Americans, you’re relying on the program to help fund your retirement years.
The SSA has a Social Security Quick Calculator that can estimate your retirement and disability and survivor benefits. You can also create a my Social Security account to review your earnings history, get a more accurate estimate of retirement benefits, or apply for retirement, disability, or Medicare benefits.