What Mattered in Money: The Big 10

“Retirement” at the turn of the last century was hardly something many people could look forward to with pleasure.

In those days, you worked until you physically couldn’t. If you hadn’t saved enough to support yourself in retirement, you moved in with the kids. Old age and poverty often went hand in hand.

That began to change with President Franklin D. Roosevelt’s New Deal. Starting in 1937, Americans started paying a small fraction of their wages into a federal Social Security “trust fund” that would ensure them income when they retired.

In reality, workers never paid into a fund: Instead, Social Security employed a “pay-as-you-go” strategy whereby the contributions of workers in any given year paid for the benefits retirees received.

Over the years, the program expanded to help the disabled, spouses, and their dependent children. Payments were eventually indexed to inflation to make sure that retirees would be able to maintain their buying power over time.

Later, the system further expanded to help pay medical costs of the elderly and to provide benefits to old people who wouldn’t be eligible for retirement payments under the traditional rules.

Today, more than 44 million Americans receive Social Security benefits.

To pay for those benefits, workers pay 7.65% of their gross income to the Social Security system; their employers pay an equal percentage.

Of course, the long-term health of the system has been a major issue in the 1990s, as the nation looks ahead to the retirement of 76 million baby boomers.

But whatever its future, Social Security over the last 60 years achieved what was intended: It vastly reduced poverty among the elderly. In turn, it also removed from many families the burden of supporting their elders.

Based on source-of-income data from the Census Bureau, the Social Security Administration estimates that 47% of the retired population today would be living below the poverty line without Social Security, versus the actual poverty rate of 10.5% among the elderly.

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The Benefit Rolls

The number of people drawing Social Security benefits, in millions:

1999: 44.4 million

1937: 53,236

Source: Social Security Administration