Social Security at 80: Built to Last
Eighty years ago today, President Franklin D. Roosevelt signed the Social Security Act into law. Four and a half years later—after the German invasion of Poland but still two years before Pearl Harbor propelled the United States into war—65-year-old Ida May Fuller received the first Social Security check for $22.54. She would live to be 100 years old.
Fuller might seem like a historical footnote, but history matters, and not just because the Social Security program was born in the midst of the Great Depression and the first benefit check was paid out even as the country was poised on the brink of war.
By any measure, Fuller got a bargain. She paid into the program for three years and collected benefits for 35 years. This was by design: Social Security’s pay-as-you-go structure allowed the first generation of seniors to collect benefits even if they hadn’t had a chance to contribute meaningfully into the program. Fuller herself was unsure if she was eligible for benefits, later saying she dropped by the Rutland, Vermont, Social Security office on a whim, remembering that contributions had been deducted from her paycheck. (Fuller, who never married, had had a long career as a teacher and legal secretary.)
Most of the benefits claimed by retirees are paid out of current workers’ contributions, not advanced savings in the Social Security trust fund (contrary to popular belief). This means that each generation earns a “return” on contributions that is linked to productivity and wage growth and not subject to the vagaries of financial markets. The trust fund is more like a checking or contingency savings account than a retirement savings account, expanding and contracting to accommodate demographic booms and busts. Thanks to advance planning, we accumulated enough in the trust fund to get us through the peak retirement years of the large baby boomer generation, another legacy of World War II.
Later in her life, Fuller moved in with a niece and her family, presumably contributing toward the multi-generational household’s expenses—a common arrangement to this day. The fact that younger generations have always supported family members who are too old to support themselves helps explain why few people in later generations resented the “free ride” Fuller and her generation got. Social Security just spread the risks a lot better and gave seniors and other beneficiaries the dignity and independence of earning benefits rather than feeling like a burden to their families or society at large.
To the dismay of early critics of the program, who sounded a lot like their counterparts today, the fact that Social Security began paying out benefits almost immediately made it nearly impossible to kill the program. (For a good quick history combined with current analysis, read this book.) In frustration, conspiracy-minded critics have dubbed it a “Ponzi scheme,” pointing out that if the program were terminated the last generation would have paid in but receive nothing in return. This seems like an argument against gutting the program, but somehow it is wielded by those who want to do just that. Adding to the incoherence, many of the same critics have called trust fund assets “worthless IOUs,” which (aside from being silly) is an argument in favor of a pay-as-you-go system, not against it.
Despite the perennial attacks, Social Security remains hugely popular across partisan and generational divides. It is also more necessary than ever, as risky and inadequate 401(k) plans have supplanted secure pensions in the private sector and the government safety net becomes increasingly threadbare (the Affordable Care Act, under similar attack, did reinforce the health portion of it). Social Security’s endurance is largely due to the fact that benefits are earned, not means-tested—and we should keep it that way.