Most Americans are familiar with Social Security, but many don’t understand exactly how it works. They may work for years and pay Social Security taxes, but very few understand the original purpose of Social Security. Many might think that Social Security has always been around, but it only started in 1935. So how exactly did Social Security start and what was its purpose? We’ll answer all of these questions and more in this article as we explain the history of Social Security and some details about how it works. Read on to learn everything you need to know.
Old age before social security
To fully understand why Social Security started, you need to understand what things were like before the program started. Before social security, retirees often struggled financially. Once they reached retirement age, many people had no choice but to continue working in order to have the financial means to survive. Although retirement itself and retirement planning are popular topics of conversation in today’s world, this was not the case in early America. Many people have not been able to save enough for retirement, and only a handful of large employers have offered any type of retirement plan. Even at those companies, very few employees retired.
In the early 1930s, it was estimated that half of the elderly in the United States did not have the financial resources to support themselves adequately. For this reason, many states have begun to pass laws that provide for an old-age pension. Before the creation of a federal social security program, about 17 states had some type of retirement plan for the elderly.
In addition to struggling financially, many seniors found themselves without reliable medical care. Since most health care plans are provided through employers, once people retire they are often left without any type of health insurance. People who became disabled and unable to work found themselves in similar situations. They were unable to earn a living and left even without health insurance. Often even the surviving workers were left in dire straits if the breadwinner suddenly died. Many surviving spouses and children have been left without financial resources and have often struggled to meet their needs. The federal government was beginning to see the need for some kind of social security program to meet these needs. Many people ask “is social security socialism” and some people still today support this question.
The Social Security Act of 1935
After the Civil War, many disabled veterans began receiving government benefits. Although it would be many years before the Social Security Act was passed and Social Security benefits officially began, this was the beginning of true social security programs in America. These Civil War pensions had many similarities to the Social Security laws that would eventually be passed and laid the foundation for how Social Security works today. In the 1930s, the Great Depression was in full swing. Many politicians have claimed that this was just another downturn in the business cycle and have suggested that Congress do nothing. However, President Franklin D. Roosevelt knew that something had to be done. He met with the Economic Security Commission to study the problem and suggest a solution. So when was the Social Security Act passed?
As a result of the Committee’s work, Congress passed the Social Security Act of 1935. “What did the Social Security Act of 1935 do?” you might ask. It was intended to offer immediate relief to families, but many of the old-age insurance programs we know today weren’t supposed to go into effect until 1942. Within a couple of years, the program was expanding. In addition to retirement benefits, the program has been expanded to include survivor benefits, spousal benefits, dependent child benefits, unemployment insurance, and other items. It would be about 20 years before the law was extended to include disability benefits.
The law also established payroll taxes to fund the program. After the assignment of social security numbers and social security cards, which was a huge undertaking, these FICA and OASDI taxes began to be collected and transferred to social security trust funds. The money from these funds was then used to pay monthly benefits to beneficiaries based on their eligibility. A one-time payment was made to eligible beneficiaries in 1937. Social Security’s first monthly payments were made in 1940, and the program continued to grow and expand for the first few years after its creation. An interesting fact is that the first monthly payment was sent to Miss Ida May Fuller, legal secretary, in 1940. We will discuss some of the key amendments to the Social Security Act later in this article.
Finally, the law established a social security council. The job of this council was to inform people about the Social Security Law, including employees, employers, and the public. They also needed to establish local field offices to administer the social security system. A few years later, this board was replaced by the current Social Security Administration.
Social security trust funds
Social Security trust funds are essentially the accounts where all payroll taxes are filed. These trust funds earn interest while the money is in these accounts. Monthly benefits are then paid from the funds in these accounts. This includes retirement benefits, disability benefits, Medicare benefits, and all other benefits paid by Social Security. Remember that Social Security is the largest item in the federal budget today, so it’s not a small amount of money paid out every month!
There are actually two separate trust funds associated with the social security program. One is the Old Age and Survival Insurance Trust Fund (OASI). It is used to pay for retirement benefits, Medicare benefits, and survivor benefits. The other is the Disability Insurance Trust Fund. This fund is used to pay disability benefits for disabled workers. In addition to benefit payments, these trust funds also pay administrative costs associated with running Social Security. This includes the salary of federal employees employed by the Social Security Administration (SSA) and other expenses incurred by the program. These administrative costs are relatively low. Most of the money raised and deposited in trust funds goes to pay benefits, while very little is used for administrative expenses.
Important Changes to the Social Security Law
The Social Security Act underwent many amendments in its early years. Most of these amendments found ways to expand the program to include payments to additional people who may need them. The first major amendment came in 1939, a few years after the law was initially passed. Initially, the law only provided for payments to retired workers. However, this first amendment has expanded it to include benefits for the spouse or minor children of a retired worker. It also included the payment of survivor benefits or payments to the family of a worker who died prematurely.
In the 1950s, Social Security payments were quite low. Payments were set from the start of the program, and many people received more from their state’s retirement assistance programs than they received from retirement benefits. In 1950 an amendment was passed that introduced cost-of-living adjustments. This was the first increase in social security benefits, although the method for automatic COLA increases was not introduced until the 1970s.
During the 1950s, there were several amendments to Social Security that addressed disability insurance. The disability program was initiated by these amendments. At first, the law simply stated that a disability would not cancel your retirement benefits. However, it was quickly changed again to begin providing cash benefits to workers who suffered a disability that prevented them from working. Another amendment expanded these payments to dependents of those workers.
In the 1960s, Medicare was introduced. This was a new type of social security program that the SSA began to administer. Millions of Americans then gained access to Medicare, and nearly 20 million Americans signed up in the program’s first three years. The 1970s also brought big changes. The Supplemental Security Income (SSI) program was introduced. Before this, these types of programs were administered by state governments, but they were very disparate between the different states. The federal government took over the administration of these programs and SSI was born.
Some additional amendments were passed during the 1970s and 1980s, with the last major amendment coming in 1983 under President Ronald Reagan. This amendment allowed the taxation of social security benefits. The social security program is now commonplace for employees, even those who are self-employed. Many people rely on Social Security as a retirement program to generate income during their retirement years, and Social Security reform is a hot topic in today’s political world, especially as life expectancies continue to increase. With Social Security fully funded only until 2037, further amendments are likely to keep the program going for the foreseeable future. These reforms could include raising the social security tax rate, lowering benefits, raising the retirement age, raising the tax cap, or a combination of these along with other ideas. With the future of social security uncertain, no one knows for sure what will happen in the next few years.
Cost of Living Adjustment (COLA)
The first COLA was born in 1950. Until then, Social Security payments had stayed the same for more than 10 years. People were beginning to see their dollar buy fewer things and struggle to survive on existing payments. In the 1970s, Congress saw the need for automatic cost-of-living adjustments based on the current amount of inflation. This amendment passed in 1972 with automatic adjustments beginning in 1975. Prior to this, the House and Senate would have had to agree to a raise and pass a special amendment to make the raise effective. This was too cumbersome, and it was often difficult to get Congress to agree on the amount. Today’s formula establishes that the calculation of the adjustment is based on the values of the consumer price index published by the Ministry of Labor. As consumer prices increase, social security payments are also expected to increase to guarantee the same standard of living.
These adjustments are now made on an annual basis. The CPI is observed year after year and the payments increase by the same percentage as the increase in the CPI. For example, if consumer prices increase by 2%, social security benefits will increase by 2%. In some years, there may be no increase if there is no increase in the CPI. Also, benefits will never decrease due to a COLA. If prices go down, your profits will stay the same. You can learn more about COLAs and view historical increases at SSA.gov.
Social security invalidity
When disability benefits were first introduced to the program, they were not in the form of cash payments. Disabled workers who were unable to work may become ineligible for retirement benefits because they have not worked for several years. The first reform adopted regarding disability simply stated that these workers could not lose their pension for not being able to work due to disability. It took a few more years for these workers to actually start receiving financial assistance before retirement age.
Today, the disability program is an important part of the social security program itself. Millions of disabled workers receive monthly benefits through SSDI. To qualify, a worker must still have sufficient work history. This means that the worker must have been in the system for a certain period of time before being eligible for these benefits. In general, they must have worked and paid social security taxes for at least 10 years before they are eligible for disability benefits. In addition to workers, disability benefits also provide assistance to survivors or dependents of workers disabled or killed on the job.
The bottom line
Social Security has been around for some time and has undergone several changes and updates over the years. Since the future of the show is uncertain, more changes are likely on the horizon. Millions of people have become dependent on the services provided by social security and many people would struggle to do without them. Understanding how and why Social Security was created helps us think about potential changes to the program in the future today.
Frequent questions
Who started social security and why?
Social Security began under President Franklin D. Roosevelt. Many people ask, “Why did President Franklin D. Roosevelt institute Social Security?” President Roosevelt saw the need for this type of social security program because many older Americans were struggling financially. After retirement, they no longer had the financial means to support themselves or their families. The program was started to provide assistance to these retired workers and ensure they are taken care of. Times were particularly tough around the time that Social Security was launched in the midst of the Great Depression.
What is the Social Security Administration?
The Social Security Administration is responsible for running and maintaining all social security programs. Originally, there was simply a social security council made up of three people appointed by the president. However, the social security management process quickly became too difficult for three people. SSA was born several years later and has been in operation ever since. The SSA handles the administration of pension payments, disability payments, survivors’ payments, and other administrative tasks associated with maintaining social security.
What was the original purpose of social security?
So why was social security created? The original purpose of social security was to provide financial assistance to older people who were no longer working. Several states already had similar programs, but there were big differences between these state programs. The federal government has recognized the need for a centralized federal program to meet this need. Social Security has been changed and expanded several times since its inception to include spousal and employee benefits, disability benefits, and Medicare. It is the largest item in the federal budget today, and millions of people depend on this important program for income and health insurance. You can expect Social Security to continue to experience more changes in the future. It is fully funded through the year 2037, but after that period it will no longer be able to fully fund its current commitments without further changes.
What party invented social security?
Social Security was sponsored by Democratic representatives in the Senate and the House. At the time it passed, Congress was largely controlled by the Democratic Party. However, most Republicans in Congress also voted for it. It was signed into law by President Franklin D. Roosevelt, who was a member of the Democratic Party. Over the years, both Democrats and Republicans have passed amendments to the Social Security Act. Social security reform is often a hotly debated issue between the two sides.