A Half-Century of Almost Unprecedented Achievement : Healthy Future Seen for Social Security
For Esther Norman, a 79-year-old retired seamstress, the Social Security check that arrives each month helps pay the rent for a tiny apartment overlooking a modest section of downtown Los Angeles. “If I had to depend on my children to support me,” she said, “I’d be the most unhappy person in the world.”
For Tom Kaiser, a 30-year old Los Angeles architect, on the other hand, Social Security holds out a promise he does not quite believe. “I wouldn’t be surprised if, when I retire, I’ll be living with some of my children in an arrangement where we’d all be working together, out of necessity,” said Kaiser, whose only direct ties to Social Security are the taxes withheld from his pay.
Esther Norman and Tom Kaiser, generations apart in age and attitudes alike, represent the two facets of a paradox:
--The Social Security system, which will mark its 50th birthday on Wednesday, is viewed with uneasy skepticism by millions of younger Americans; a full majority of those under 30 are convinced that they will never collect benefits. And the system faces renewed attacks from conservatives who argue that other approaches could provide far higher benefits to many retirees at far less cost to taxpayers.
--But the Social Security program, decried at its birth as dangerously radical and unreliable, has achieved a half-century of almost unprecedented achievement, rescuing millions from dire poverty and freeing countless others from dependency on the uncertain generosity of children or charity.
Signed into law by President Franklin D. Roosevelt in the midst of the Great Depression on Aug. 14, 1935, the Social Security system stands as an economic and philosophical milestone of almost revolutionary proportions. For the first time in U.S. history, the federal government was given responsibility for the collective care of an entire segment of the population, with taxes on workers like Kaiser, the young architect, financing a minimum standard of well-being for retired workers like Norman, the seamstress.
And, backed by a level of popular support that is almost unique among federal programs, Social Security will be healthy for decades to come, almost all experts agree, offering the same levels of security and independence to future generations that current retirees enjoy.
What many of today’s workers are too young to remember--but what is seared into the memories of older Americans--is the grim reality of the years before Social Security. Most workers then relied entirely on toil and thrift to survive in their final years. Those with no children to help out and no nest egg built up during their working years faced the uncertain mercies of local charity--the poorhouse, the county farm, the workhouse, the almshouse.
‘More Than a Roof’
In a typical poorhouse, historians have recorded, a long room was filled with rows of beds only a foot or two apart. “It was not unusual to see a feeble old man hanging over the edge of his bed, trying to eat from a tray that had been left on the chair barely within reach,” Ethel McClure wrote in “More Than a Roof,” a study of Minnesota poor farms. “In an institution where one bathroom served some 30 men and the plumbing leaked, the matron once told a visitor that she usually found it necessary to put on rubbers before going in to clean the room in the morning.”
For today’s retirees, those scenes are like bad dreams from childhood. “They sent them over the hill to the poorhouse,” said Thelma Benson, a 71-year-old retired cafeteria worker, recalling her childhood in Mobile, Ala. “I was a little girl but I can remember. All they did was lay up there and die.”
Despite the desperate plight of the elderly in the Depression, President Roosevelt’s Social Security proposal drew sharp attacks from those who opposed any federal role in old-age assistance. And former President Herbert Hoover, no friend of Roosevelt’s New Deal programs and reportedly fearing that his identity would be submerged by the issuance of a Social Security number, steadfastly refused to enroll in the program.
‘Had to Fight for It’
“People had to fight for it,” recalled Louis Weinstock, 82, a retired painter in Los Angeles who, along with his wife, gets $1,000 a month in Social Security benefits. “There were hunger marches in this country. People said, ‘Louie, you’re 28, why are you fighting for old-age pensions?’ But I did it for myself too. Now I’m enjoying Social Security.”
The new program included not only retirement payments but such other milestones as unemployment insurance and welfare for families with dependent children. Retirement benefits ranged from $10 to $41.20 a month.
For the elderly who participated, Social Security was a blessing from the day it began disbursing its first retirement benefits in 1940.
The monthly check meant “the old man could buy his own tobacco or his own glass of beer,” said the Rev. John Lee, a 70-year-old Baptist minister who once let advocates of government help for the elderly meet in his Massachusetts churches. “It meant that the lady could buy cosmetics, that she could afford to go to the bingo game. It meant that both of them could come to church on Sunday morning and put something in the collection box. They didn’t have to be freeloaders anymore.
‘Scared of Growing Old’
“Everyone was scared stiff of growing old,” he said. “There was no such thing as help or understanding or even pity. It was a horrible time for people who were old, and in those days you were old at 55 or 60.”
Even today, without Social Security a staggering 60% of the aged would be living in poverty. With it, only 14.1% are classified as poor--compared to 15.3% for the population as a whole. And for millions of Americans, Social Security supplements savings and other pensions, making the difference between barely scraping by and enjoying a comfortable, dignified old age.
Rosie Payne, 79, is one of those who, without Social Security, would probably live out her final years in abject poverty. A lifetime of hard work--first picking as much as 500 pounds of cotton a day and then working as a maid--failed to qualify her for Social Security because farm workers were excluded until 1951 and her household employers dodged the Social Security tax. But, thanks to her dead husband’s job as a gardener for the city of Los Angeles, she survives on a widow’s Social Security benefit of $338 a month.
Now she sits at home during the day, reading the Bible and watching television. “I wouldn’t be able to survive” without Social Security, she said.
New Dentures and Car Repairs
For Lillian Tarry, 67, whose $235 monthly check constitutes most of her income, Social Security enabled her recently to get a new set of dentures and to repair her 11-year-old car. Tarry, who lives in a small house in Compton, said her poorer friends “would have to go and pick up bottles if it wasn’t for Social Security.”
And Robert H. Castetter, 75, said his monthly check provides about one-third of his total income, the icing on the cake for a “comfortable retirement life” near San Diego that includes golf and monthly excursions to such places as Canada and Mexico in a 21-foot camper van.
From the beginning, Congress has provided periodic benefit increases, and in 1972 it mandated an annual increase to match the cost of living. As a result, when inflation soared in the 1970s, the elderly were protected. The average benefit has now reached $449 a month for a retired worker and $776 for a couple, with Social Security providing at least half the income of the majority of retired Americans.
Life’s Vicissitudes
Moreover, the program provides far more than old-age benefits. It also offers protection against life’s vicissitudes. Among 28-year-old workers, for example, one in four will die before reaching 65; severe disability will keep another one in six out of the work force for a year or more. Unlike a private savings plan, Social Security will provide benefits for the dependents of those who die prematurely, as well as those who are disabled.
“Since three out of four baby boomers will marry and have children, Social Security provides them and their families with protection against risks which no savings or investment plan could ever adequately protect and for which private insurance would be prohibitively expensive,” said Rep. Edward R. Roybal (D-Los Angeles), chairman of the House Aging Committee.
As a result of those broad features, today’s Social Security recipients range from some of the wealthiest Americans to some of the poorest, from very young children to 24,900 persons over age 100.
The program accounts for 6% of all personal income in the United States.
‘A Better Life for Millions’
“I don’t know of any other government program that has meant so much to so many; it has helped bring a better life for millions of Americans,” said Rep. Claude Pepper (D-Fla.), the 84-year-old chairman of the House Rules Committee and Congress’ best-known champion of the retirement system. “Social Security is not a handout; it has become a sacred, hallowed American right.”
Given such a record, and the public support now woven deep into the fabric of national beliefs--in poll after poll, more than 80% of voters at all ages support the current system--why does Social Security end its first half-century as an object of criticism? And why do a majority of those under 30 express doubts that they will receive benefits when they reach retirement age?
It part, the answer lies in the resurgence of old arguments about the proper role of government, and about how best to provide economic well-being for those no longer able to work.
Unfavorable Trends
In larger part, however, the answer lies in unfavorable economic and demographic trends--trends that do not appear to threaten the long-term viability of the system but do diminish it as an economic bargain and will require present-day workers to labor longer than their parents before receiving benefits.
Today, 36 million Social Security recipients share in the taxes paid by 123 million workers. Because the elderly will constitute an expanding proportion of the total U.S. population in the years ahead, however, Social Security will not be quite the economic bargain for the baby boom generation that it has been for the baby-boomers’ parents and grandparents. Although young workers can expect equally generous benefits, they will have to carry a much heavier tax burden for more years before qualifying.
Those economic and demographic facts have given new life to the argument--advanced from the first about Social Security--that many young workers could do better financially if they were allowed to drop out of the system and invest for themselves the money they would otherwise pay in Social Security taxes.
Retirement Accounts
For example, some critics have concluded that younger workers would be better off if they could devote those taxes to Individual Retirement Accounts, which allow savings to pile up tax-free.
Consider a 22-year-old couple with average earnings. The couple could accumulate savings of $864,265 if they did not have to pay Social Security taxes and could instead invest the same amount of money in an IRA providing an interest rate--after adjustment for inflation--of 6%, according to a study prepared by Peter J. Ferarra and John R. Lott Jr. for the Cato Institute, a conservative think tank in Washington. This handsome nest egg would give them a perpetual income of $51,856 a year in today’s dollars. By contrast, the same couple under Social Security could expect a much more modest annual benefit of $19,064.
Defenders of Social Security attack such calculations as dangerously dependent on optimistic assumptions about the future. The numbers assume that current high interest rates will continue, that young workers will have the income, opportunity and self-discipline to save voluntarily each year, and that investments would be safe and sound until the workers reach retirement age.
Grounds for Caution
History provides abundant grounds for caution on all of those points, defenders of Social Security say. For one thing, throughout most of the nation’s history, the interest rates assumed by critics such as Ferarra have simply not been available to ordinary investors--and almost never with the security of a government program.
Beyond that, said former Social Security Commissioner Robert M. Ball, in the absence of Social Security, a young couple attempting to amass $864,265 in savings would be forced to divert money from the IRA to help support their parents and to pay more taxes to finance welfare programs for the destitute aged and the disabled.
If Social Security offers a level of assured protection absent from private schemes, the cost has been sharply higher taxes on workers. At the outset in 1935, workers had to pay a tax of 1% on their first $3,000 in annual income, with employers paying a matching amount. As recently as 1977 the maximum annual Social Security tax payment was less than $1,000 a year.
Tax Is Now 7.05%
Now the combined tax for Social Security and Medicare is 7.05%, paid by both workers and employers, on the first $39,600 of income. The maximum annual tax payment has soared to $2,791.80 and is scheduled to climb to $3,649 in four years.
This burden--despite its mounting size--seems tolerable to young workers: a majority of them support the current system of taxes and benefits.
At the same time, they remain skeptical about the future. Kaiser, the architect, for one, is convinced that Social Security will prove less generous to him than it does to today’s retired workers. “I really feel that, for Social Security to make it, it’s going to have to be augmented by the individual beneficiaries,” he said. “They’re going to have to work longer or live with their families.”
Kaiser’s contention is not entirely wrong. All workers, those already retired and those just beginning their careers, are scheduled to enjoy the same relative level of benefits--about 40% of income just before retiring for the average worker. But measured purely in economic terms, younger workers will not reap quite the windfall in benefits enjoyed by generations that retired before them.
The average married male worker who retired at age 65 last year figures to have paid $22,500 in Social Security taxes during his working years and is likely to live long enough to collect $139,200 in benefits, according to the Social Security Administration. This represents about $6.19 in benefits for every $1 paid in taxes.
Still a Good Deal
Younger workers will pay substantially more for comparable benefits. An average worker who turned 21 last year will pay $720,100 in taxes and receive $1,618,400 in benefits. This is still a good deal--$2.25 in benefits for every $1 in taxes--but it is not nearly as lucrative as that enjoyed by the current generation of beneficiaries.
And other developments have further increased the burden for younger workers.
When Social Security almost ran out of money in 1983 because benefit levels--driven upward by unexpected levels of inflation--grew even faster, Congress came to the rescue. The rescue called for some sacrifice by the elderly: annual cost-of-living increases were postponed for six months and, for recipients with substantial outside income, half of all Social Security benefits became subject to the income tax for the first time.
‘A Package of Pain’
But Paul Light, director of academy studies at the National Academy of Public Administration, said the rescue legislation amounted largely to “a severe package of pain for the baby boom generation.”
Starting in the year 2000, the age of eligibility for full benefits, now 65, will be raised gradually until it reaches 66 in the year 2009 and then 67 in the year 2026. A worker will still be able to take early retirement at age 62, but the benefit will be only 70% of the full retirement check, compared to the 80% benefit level available today for those who retire early.
And younger workers, when they retire, may have to pay taxes on fully half of their Social Security benefits. The 1983 compromise made up to half of total benefits taxable when total income exceeds $25,000 for a single person and $32,000 for a couple.
Those income levels are achieved today by fewer than 10% of beneficiaries but, unless Congress adjusts the income thresholds upward, inflation will push many beneficiaries over those levels by the time today’s younger workers retire.
Annual Surpluses Seen
If those sacrifices are made, most experts see no need for benefit cuts for at least a decade or more beyond the end of the century. The retirement fund is expected to generate annual surpluses through the year 2015, according to the program’s trustees. Until then, massive numbers of baby boomers will be working and paying taxes, while the retired population will grow slowly, reflecting the relatively small number of births during the Depression years.
Without changes in current law, the fund will then begin to suffer huge annual deficits in about 2035, with all of the surplus exhausted sometime between 2050 and 2055. Long before bankruptcy looms, however, the population over 65--which will have swelled from the current 11% to an estimated 20% of the total population by 2020 because of the aging of baby-boomers--is likely to insist that the program be rescued again.
“The crisis is so far in the future that there’s no pressure for action now,” said Light of the National Academy of Public Administration.
“But my guess is that the presidential campaign of 2012 will have Social Security as one of the big issues. It takes time to get political attention. Somewhere out there is a baby boomer who will be elected on the Social Security issue.”
SOCIAL SECURITY SNAPSHOTS
The Beneficiaries: Then (Total number of recipients from 1940 to December, 1984)
millions Retired workers 45.8 Spouses of retired workers 12.4 Children of retired workers 5.0 Widows and widowers 11.4 Children of deceased workers 15.0 Disabled workers 9.7 Spouses of disabled workers 2.5 Children of disabled workers 8.0
The Beneficiaries: Now (Total number of current recipients, as of April, 1985)
millions Retired worker and dependents 25.6 Disabled workers and dependents 3.8 Survivors of deceased workers 7.2
The Program: A Close-Up Look (Average monthly benefits for 1985)
Retired worker $449 Retired couple 776 Widow (60 or over) 415 Surviving family -- mother and two children 988 Disabled worker 473 Disabled worker, spouse and two children 893
The Program: How It Has Expanded
2020 1940 1985 (projected) Persons receiving payments 222,000 36 million 60 million Total spending $62 million $173 billion $2.4 trillion Average monthly benefit $22.60 $480.70 $2,632.50
Source: Social Security Administration
