Author: Dan Kline, Director, Financial Planning
The Social Security Act, signed into law by President Roosevelt on August 14, 1935, celebrated its 85th birthday this year. In 2020, about 65 million Americans will receive over one trillion dollars in Social Security benefits. To celebrate this landmark program that is a major source of income for America’s older population, we’ll review the Social Security Act’s interesting history in this blog post.
The Social Security Act was intended to pay retired workers aged 65 or older a continuing income after retirement. A precursor to Social Security, the Civil War Pension, which began in 1862, paid benefits to disabled (service-connected) veterans of the Civil War, including their widows and orphans upon their passing. Even though the civil war was a century ago, Irene Triplett, who passed away just this year, was the last American to collect a Civil War pension check.
The Social Security Act (the Act), would pay benefits based on payroll tax contributions that the worker made during his or her working life. Taxes would first be collected in 1937 and monthly benefits would begin in 1942. Those who turned age 65 prior to this start date would receive a lump sum payment.
The earliest known applicant for such a lump-sum benefit was Ernest Ackerman in 1937, who retired one day after the Act began. During his one day of participation in the program, a nickel was withheld from his pay for Social Security and when he retired, he received a lump sum payment of 17 cents.
In 1939 there were two important amendments to the Act. The first added the benefit of payment to the spouse and minor child of a retired worker. The second added survivor benefits to be paid to the family following the premature death of a covered worker. This amendment also moved up the start date of monthly benefits to 1940.
Another interesting story is that of Ida May Fuller, who received the first monthly retirement check in the amount of $22.54 at age 65. Ida had paid into Social Security for three years, a total of $24.75. During her lifetime she collected a total of $22,888.92 in Social Security benefits.
Additional amendments were made to the Act over the years, including:
Today, the latest board of trustee’s report suggests that the Social Security program will be solvent until 2035. There is speculation that it will only pay 80% of scheduled benefits at that time. A few small adjustments to the program, such as raising the payroll tax or increasing the full retirement age, may increase the sustainability of the program for decades. Based on historical changes, we have confidence any forthcoming changes will have minimal effect on those currently in their 50’s and 60’s or those already receiving benefits.
I hope you enjoyed this small history lesson on Social Security benefits. Knowing when to apply for your benefits can be a complicated decision depending on your individual situation. We advise working with a financial advisor who is familiar with your situation and has experience in Social Security retirement claiming strategies before applying for your benefits. You can also learn more about key factors to consider before claiming your benefits in our previous blog post.
About the Author
Dan Kline is a Financial Planner with the Private Client Advisory and Financial Planning teams within the Wealth Management group at FNBO. He specializes in providing comprehensive personalized financial planning incorporating investment, tax, protection, retirement and estate planning strategies.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.