The Social Security program was created in 1935 and began paying out monthly benefits to retired workers five years later. But there have been several important adjustments to the program, including changes in the retirement…
The Social Security program was created in 1935 and began paying out monthly benefits to retired workers five years later. But there have been several important adjustments to the program, including changes in the retirement age and increases in benefits to keep up with inflation. Here’s how Social Security has changed over nearly 85 years.
What Is the Social Security Act?
President Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935. The law created a program that would pay monthly benefits to retired workers starting at age 65 or older. The act also established a payroll tax to fund the program, and required employers to withhold the tax from employee wages.
Regular monthly payments to retirees began in 1940. The first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont for $22.54 in January 1940. Fuller, who worked as a legal secretary, collected payments until age 100 in 1975. Monthly payments to retired workers have continued since then and increased to an average of $1,464 per month in January 2019.
Why Was Social Security Created?
This government program was founded during the Great Depression, a time of widespread unemployment and poverty among the elderly. Urbanization led to an increasing proportion of Americans living and working in cities apart from their extended family. Better health care and public health policies increased the life expectancy of the typical American. The federal government created the Social Security program “to provide for the general welfare by establishing a system of Federal old-age benefits,” according to the preamble to the 1935 Social Security Act.
When Did Spousal and Child Payments Begin?
Amendments to the Social Security program in 1939 added payments to the spouse and minor children of retired workers and benefits for survivors of prematurely deceased workers. Spouses continue to be eligible for up to 50 percent of the higher earner’s benefit, if it’s greater than the payments due based on their own work record. Dependent children under age 19 can also claim payments. “Participating in Social Security provides core protection for all of our children,” says Eric Kingson, a professor of social work at Syracuse University. “It’s life insurance, in effect.”
When Did Social Security Start to Include Disability Benefits?
Disability payments for older workers were added to the program in 1956. President Dwight D. Eisenhower signed a law in 1960 extending disability payments to workers of all ages and their dependents. Within a year, half a million people were receiving disability payments that averaged $80 per month.
How Has the Social Security Retirement Age Changed?
The original age to claim Social Security payments was 65. A 1961 law allowed workers to begin claiming permanently reduced Social Security payments as early as age 62. “Anytime from 62 on you could claim, but the benefit was reduced proportionally to how much earlier you did start to claim,” says John Palmer, a Syracuse University professor and former public trustee for the Medicare and Social Security programs. “Now a majority of people opt to start claiming at 62.” A 1983 law raised the full retirement age to 66 for most baby boomers and 67 for people born in 1960 or later and increased the reduction in monthly payments for people who sign up before their full retirement age. Provisions were also added to increase payments for retirees who delay claiming benefits past their full retirement age up until age 70.
When Did Social Security Benefits Become Taxable?
Part of Social Security benefits became taxable for people who earn above a certain amount beginning in 1984. If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit exceeds $25,000 for individuals and $32,000 for couples, up to 50 percent of your Social Security benefit is subject to income tax. If these sources of income top $34,000 for individuals and $44,000 for couples, 85 percent of your Social Security payments may be taxable. “The thresholds that are set up are not indexed to inflation, so more people will have some portion of their Social Security income be subject to taxation,” Palmer says.
How Much Have Social Security Payroll Taxes Increased?
The original Social Security contribution rate was 1 percent of pay, which was matched by employers. The tax rate grew to 1.5 percent in 1950 and gradually increased to top 5 percent by 1978. The current tax rate of 6.2 percent has been in effect since 1990. However, higher earners don’t pay Social Security taxes on all of their income. The Social Security tax applied only to earnings of $3,000 or less in 1950 and earlier. The tax cap has increased over time to $51,300 in 1990 and $132,900 in 2019. Earnings above this amount are not subject to the Social Security payroll tax or factored into benefit payouts.
When Did Cost-of-Living Adjustments Become Automatic?
Social Security payments were initially increased only by special acts of Congress. When payments began in 1940, workers received the same amount for 10 years until Congress decided to boost payments, and further increases were implemented on an ad hoc basis. “A lot of those increases occurred in election years,” Palmer says. Congress passed a law in 1972 creating automatic cost-of-living adjustments to Social Security payments based on the annual increase in consumer prices. These annual increases in payments, which were first paid out in 1975, have ranged from zero in 2010, 2011 and 2016 to 14.3 percent in 1980.
How Have Social Security Payments Changed Over Time?
Retirees can now sign up to receive Social Security payments online. The Social Security Administration no longer mails paper checks to most retirees. A 2013 law requires all beneficiaries to receive payments electronically via direct deposit to a bank account or loaded onto a prepaid debit card. “When we first started 80 years ago, we were mostly providing face-to-face service,” says Carolyn Colvin, former acting commissioner of the Social Security Administration. “Over the years we have moved to our 800 number, and we are gradually offering additional products online.” The Social Security Administration has stopped mailing paper Social Security statements to most workers, but you can now create an online account to view your Social Security statement online and check your earnings history, taxes paid and get a personalized estimate of your future Social Security benefit. “We introduced the earnings statement so people could check the accuracy of the statement before they retired,” Colvin says. She recommends that workers sign in to check their statements once a year.