Cradle to the Grave: A Look at Social Security’s 100-Year Lifespan
Born in controversy in 1935, the Social Security program grew, changed and functioned admirably for many years. As of 2015, it provided more than 60 million Americans with disability payments or funding for their golden years. However, by the time it reaches its 100th birthday, it will be in dire financial straits.
Throughout its first 82 years, Social Security took in $19.9 trillion and paid out $17.1 trillion, leaving asset reserves exceeding $2.8 trillion in its two trust funds. However, by 2028, disability insurance (DI) reserves will be depleted. And in 2035, old age and survivor insurance (OASI) reserves will be depleted. Taken together, the program won’t have enough money to pay its obligations to the men and women counting on retirement and disability checks by 2034 — unless certain changes are made.
If you don’t understand how this could be happening, you aren’t alone. Many don’t know the tumultuous history of Social Security that brought the nation to this insecure future. Check out these key changes to Social Security throughout the years to get a better understanding of what’s happening with Social Security today.
1935: Social Security Born in Bitter Controversy
In 1935, Congress passed the Social Security Act, and President Franklin D. Roosevelt signed it into law on Aug. 14. However, that didn’t mean the country and its politicians were united behind the program.
The appropriation bill for the new program was killed in a filibuster by Sen. Huey Long just 12 days after it became law. Long — facing a tight reelection campaign — spoke from dusk until midnight. And a year later, a presidential candidate called the old-age Social Security insurance system a “cruel hoax.”
Yet from that moment on, Americans began to view a retirement pension as a right, not a luxury. And politicians struggled to work out the program’s shape and its funding.
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1940: First Social Security Retirement Benefits Paid
On Jan. 31, 1940, the new Social Security law paid its first Social Security retirement benefits monthly check to Ida May Fuller.
Fuller had only paid into Social Security for three years when she turned 65 and began receiving benefits. Her total payments into the fund were $24.75. Her monthly checks — which she collected until she died at the age of 100 — were $22.54 each.
Fuller received $22,888.92 in benefits over her lifetime. This illustrates one of the problems with the new program. The initial tax was only 1 percent of a person’s income and applied to the first $3,000 that person earned. In order for the program to stand on its own economically, it had to take in more tax money than it paid out in benefits. This became increasingly difficult as more benefits were added to the program.
1945: Social Security Turns 10
After World War II, President Harry S. Truman put forward a radical idea before Congress on Nov. 19, 1945: Prepaid, comprehensive medical insurance for all Americans covered by Social Security, including doctors, hospitals, nursing, dental and laboratory services. It wouldn’t be for another 20 years that something like this — Medicare — would come into existence.
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1950: Social Security Turns 15
President Truman was still in office when Social Security reached 15 years old. And on Aug. 28, 1950, he signed the 1950 Social Security Amendments.
Whereas today most talk about Social Security is about its limits, the 1950 Social Security Amendments authorized its expansion. The law extended old-age and survivors insurance to cover an additional 10 million Americans. At the same time, it raised benefits significantly and loosened eligibility requirements.
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1956: Disability Benefits Added to Social Security
Disability payments were not included in the initial Social Security program. It seemed difficult for the government to make disability determinations, and politicians feared their potential cost.
But the disability insurance door opened in 1954, when President Dwight D. Eisenhower signed a disability “freeze” into law. At that time, an employee had to work for a certain number of years to get retirement benefits, and people too disabled to work were cut out.
The “freeze” excluded periods of disability from the employment period to earn retirement benefits. It was the de facto beginning of the disability program since the Social Security Administration — in charge of determining disability — did a good job of it.
By 1956, the Social Security fund was solvent, and the economy was strong. In 1956, a disability benefits program was signed into law, administered by the Social Security Administration. Its expansion would create more of a cash drain than anticipated.
1964: Social Security for All Citizens
Just shy of 30 years old, Social Security received another protection that ensured coverage for all eligible Americans. That’s because Congress passed the Civil Rights Act of 1964 on July 2. For the first time, Federal programs by law could not discriminate on the basis of race, color or national origin.
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1965: Medicare Becomes Part of Social Security
On July 30, 1965, right before Social Security turned 30, President Lyndon B. Johnson signed Medicare into law. Social Security taxes would pay for hospital insurance for older Americans, while beneficiary contributions and the general fund would pay for their doctors.
National healthcare had always been a controversial idea, opposed vehemently by the American Medical Association and fiscally conservative representatives. Even President John F. Kennedy, at the height of his popularity, was not able to push this legislation through.
In 1965, Democrats held super-majorities in both houses of Congress. Opponents saw the writing on the wall and fought to limit, rather than prevent, the inclusion of Medicare. At the last moment, they pushed through one final change, which allowed hospitals and doctors — not the government — to determine “reasonable charges” for costs.
1977: Preparing Social Security for the 21st Century
America experienced tough economic times in the 1970s. As a result, Social Security’s financial outlook looked like it was in jeopardy.
President Jimmy Carter signed into law the Social Security Amendments of 1977 in order to shore up Social Security’s financial future. The law changed tax formulas to raise more money for the program. After the amendments were passed, Carter notably said, “Now this legislation will guarantee that from 1980 to the year 2030, the Social Security funds will be sound.”
1981: Reining in Social Security
Despite Carter’s optimistic words, Social Security continued to run into financial troubles. Under President Ronald Reagan, Congress passed the Omnibus Budget Reconciliation Act of 1981 to address the program’s money problems.
The new law implemented huge changes in Social Security, Supplemental Security Income (SSI), Aid to Families with Dependent Children (AFDC) and other programs, namely by cutting back. The legislation eliminated students’ benefits and young parents’ benefits when a child reached 16, as well as many other modifications that reined in the cost of Social Security.
1982: Social Security Costs Peak as a Percentage of GDP
By 1982, Social Security costs rose to 5 percent of the gross domestic product, and the Greenspan Commission announced the fund would not be able to make all its benefit payments the following year.
This led to the Social Security Amendments of 1983, signed into law by Reagan. According to Brannon Lambert, a retirement expert with Canvasback Wealth Management, these amendments extended the life of the program by approximately 50 years by moving up scheduled increases in the Social Security tax rates.
With these amendments, up to half of Social Security benefits could be included in taxable income, pushing cost-of-living adjustments to December and increasing full benefits eligibility from 65 to 67 by 2027. The earnings test for Social Security recipients age 65 and older changed so that $1 of benefits would be withheld for every $3 of earnings above the annual exempt amount.
But Lambert said he considers the amendments important in the history of Social Security because they caused many workers to make retirement decisions based on secondary factors, such as taxes or earnings tests.
1996: Social Security and ‘Welfare Reform’
Legislation in the 1980s cut back on Social Security and the 1990s would see more of the same. On Aug. 22, 1996, President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Referred to as “welfare reform,” this legislation eliminated SSI eligibility for most non-citizens.
The 1996 law also implemented a time limit of 60 months on lifetime welfare benefits. When the act went into effect in 1997, 325 welfare recipients and residents of Connecticut became the first to lose their benefits in this manner.
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2001: Social Security in the New Millennium
Social Security’s financial problems didn’t go away despite measures to limit its cost. In May 2001, President George W. Bush announced the creation of a bipartisan commission to investigate ways to preserve Social Security named the President’s Commission to Strengthen Social Security.
On Dec. 11, 2001, the President’s Commission to Strengthen Social Security held its final meeting and voted unanimously to approve the Draft Final Report. In the end, the Commission posed three possible scenarios for salvaging Social Security’s finances but didn’t recommend a single reform proposal.
2015: Congress Passes Bipartisan Budget Act of 2015
In October 2015, Congress passed the Bipartisan Budget Act of 2015. Lambert said these rules “essentially wiped out a lot of the benefits and rules workers had come to rely on that were enacted by the Senior Citizens’ Freedom to Work Act of 2000.”
Those benefits had allowed workers at or past their full retirement age to continue to work while receiving benefits at full retirement age without paying a financial price for it. The 2000 act also allowed a worker to file for benefits and then immediately suspend the payments. The worker could delay retirement credits while allowing a spouse to collect spousal benefits from the same record.
Both of these benefits were removed by the 2015 Budget Act, said Lambert. A beneficiary can no longer file for a spousal benefit only and allow his or her own benefit to grow through delayed retirement credits. “File and suspend” rules were gutted, as well.
2017: Donald Trump Election Leads to Social Security Uncertainty
Donald Trump became president on Jan. 20, 2017. During his campaign, Trump made many promises to preserve both Social Security and Medicare, though it is not clear how his policies might change Social Security.
Because the huge Baby Boomer generation is on the doorstep of retirement — and fewer people are entering the workforce — the Social Security Administration predicts the trust funds supporting the old-age retirement and disability programs will run out by 2034. Many in Trump’s administration and his party support sweeping cuts to these programs.
The president’s promised infrastructure spending might increase the number of people in the workforce, shoring up the trust funds, yet the sweeping tax reform he promises might reduce Social Security funding. The president’s “America First” foreign trade policies might help the economy — and thus increase funding for Social Security. Or, the policies might hurt it, depending on how they play out.
Will Trump’s immigration policies create jobs or eliminate them? Will his policies even be implemented? And what will the administration be willing to sacrifice to balance the budget? Given all of these unknowns, it’s impossible to predict where Social Security will stand in a decade.
To be prepared no matter the future, American workers should read expert tips on how to maximize retirement income — and save as much money as they can.
2035: Is Social Security Dead at Age 100?
According to the Social Security Administration, Social Security will be fully funded until becoming depleted in 2034. But after that, only about three-quarters of it can be financed.
Thus, Social Security won’t be dead by the time it turns 100 in 2035. However, it won’t be the same. If the gap between how much payroll taxes can finance and Social Security’s cost grows, retirees could get less Social Security or workers might need to pay more into the system.
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Photos are for illustrative purposes.