How Social Security Works

A Brief History of Social Security
President Roosevelt signing the Social Security Act of 1935
President Roosevelt signing the Social Security Act of 1935
Photo courtesy Library of Congress

The term "social security" originally described any program intended to help people with limited financial resources. These people can include the poor, the physically disabled, the mentally ill and the elderly. European trade guilds had the first such programs, with government sponsored "poor laws" coming later.

The first widespread social security program in the United States was Civil War veteran pensions. Initially, payments were given to Union veterans who had been disabled in battle or to the widows of Union soldiers (Confederate veterans and their families were not given pensions). The program was then expanded to include any disabled Union veterans, whether they had been injured in the war or not. This was a huge program -- in 1894, more than a third of the money the federal government spent went to military pensions [ref].

The Great Depression of the 1930s brought into sharp focus the need for a comprehensive system to provide enough money to the poor and elderly so that they could live independently. Millions of Americans had no job or couldn't earn enough money to feed their families. In 1932, Franklin Roosevelt was sworn in as President with the Depression in full swing. He proposed an idea known as social insurance. This idea would eventually develop into the Social Security system of today.

In 1934, Roosevelt formed the Committee on Economic Security (CES). The committee, based on Roosevelt's social-insurance idea (which was already in use in almost three dozen countries in Europe), drew up a plan that would allow workers to place a small percentage of their pay into an aggregate account. Later, when they retired, they would draw money out of that account to help them meet their monthly expenses. The Social Security Act (SSA) became a law in 1935.

Over the decades, the U.S. government has adjusted the SSA retirement-assistance system to cope with changes in the population and the economic situation. Among other changes, families of workers were made eligible to receive payments; cost-of-living adjustments, or COLAs, were added so that Social Security benefits could increase along with inflation without requiring a major act of Congress; and disability provisions were added to the program.

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