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A Brief History of Social Security

Despite our familiarity with Social Security as a creation of President Franklin D. Roosevelt during the Great Depression, the concepts that prompted its development are much older. 19th Century Germany utilized a form of social insurance at the urging of the unified country’s first chancellor, Otto von Bismarck.

Closer to home, hundreds of thousands of people were left widowed and orphaned because of the American Civil War, and hundreds of thousands of the soldiers who survived were severely disabled and incapable of working. In fact, after the war, the United States had a higher proportion of disabled individuals or survivors of deceased breadwinners than at any other time in the country’s history. A generous pension program was created to help these individuals who would otherwise be destitute.

Non-military Americans were not as fortunate. Companies could do anything they wanted during the Industrial Revolution, and only the most magnanimous private businesses took care of their employees in their post-working years. Some companies moved older workers into symbolic jobs at reduced pay, and a few paid a form of a retirement stipend.

The depression of the 1890s was a preview of what was to come decades later. Unemployment ran rampant through the newly-industrialized society, and it showed that even those willing and able to work might not be able to, with disastrous consequences for individuals and families alike.

As the Great Depression took hold in the 1930s, poverty among the American elderly skyrocketed. By 1934, half of the elderly population lacked enough income to remain self-sufficient. Prior to 1930, no state welfare pensions existed for the elderly in the United States, mostly because people were still coming to terms with the impact of American urbanization. Life expectancy increased, but the idea of an extended nuclear family disappeared. So, the elderly lived longer with no family resources to support them in their advanced years.

In response to the growing calamity hitting elderly Americans particularly hard, 30 states created some form of an old-age pension by 1935. Benefits under these state plans averaged $0.65 per day per person. Restrictive eligibility criteria made it impossible for many needy elderly people to qualify for benefits. This is the point at which the federal government became involved.

In June 1934, President Roosevelt told Congress that he intended to create a social security program for Americans. He signed the Social Security Act into law in August 1935. In its original form, the Act provided a social insurance and general welfare program that would continue the income of retired workers age 65 and older. Federal Insurance Contributions Act (FICA) taxes were first collected in January 1937.

Subsequent amendments to the Act were made in the decades after 1935. The 1939 amendments added payments for spouses and minor children of retired workers along with survivors benefits for families in the event of the premature death of a covered worker. Monthly benefit payments began in 1940. An amendment in 1950 provided the first cost-of-living adjustment (COLA). Social Security Disability Insurance (SSDI) made its first appearance in 1954 amendments, and by 1956, benefits were available to disabled workers between ages 50 and 64.

President Lyndon B Johnson signed the Medicare bill in July 1965, which was a social insurance program to extend health insurance coverage to almost all Americans age 65 or older. Supplemental Security Income (SSI) was created in 1972, and automatic COLAs started in 1977. Beginning in 1980, an amendment to the Act required periodic reviews of current disability beneficiaries to ensure they remained eligible.

More recently, individuals became ineligible for benefits if alcoholism or drug addiction was a material factor in his or her disability as of March 1996. And in December 1999, President William Clinton signed the Ticket to Work and Work Incentives Improvement Act of 1999 into law. Under this system, disability beneficiaries received a ticket that they could use to obtain vocational rehabilitation services, support services, and employment services from an employment network of their choice.

Currently, 1 in every 7 Americans receive some kind of Social Security benefits, and over 90% of all workers in the United States are employed in jobs covered by Social Security.