Social Security’s Past, Present and Future

As we celebrate the 80^th anniversary of Social Security, it is time to recall its contribution to the economic security of America’s working families, and to look toward its future.

Remarkably, for 80 years, through numerous wars and recessions, Social Security has never missed a payment, and has never contributed a penny to the federal debt. Self-financed through contributions by workers and their employers – augmented since 1983 by taxes on benefits – with its annual surpluses invested in U.S. Treasury Bonds, Social Security is walled off from the tumult of both the stock market and annual appropriations battles. While the rest of the government can – and does – accumulate debt, Social Security must, by law, live within its means.

Before Social Security, in 1934, roughly one half of seniors were estimated to be poor. Most had to rely on family or friends, or go to the poor house. As ever more seniors paid into Social Security and then received retirement benefits, the poverty rate among seniors steadily declined from circa 50 percent in the Great Depression to 35 percent in 1959, 25 percent in 1970, 15 percent in 1975, and around 10 percent in 2000, where it has hovered ever since. Today, were it not for Social Security, the senior poverty rate would be 43.5 percent, and just over half of elderly African Americans (51 percent) and Latinos (52 percent) would be poor.

Social Security provides working families insurance against wage loss throughout the life span. Twelve percent of children rely on Social Security benefits, either as dependents of retired, disabled or deceased parents (or grandparents), or because another adult in their household receives benefits. No one ever plans on becoming disabled, but just over 1 in 4 people who turned 20 in 2013 are projected to become severely disabled during their working years. 151 million working Americans, and their families, are insured through Social Security against income loss due to disability. 212 million Americans, and their families, are insured through Social Security against income loss due to old age or death. In sum, Social Security not only provides the primary retirement security for most working families, but also our primary disability and life insurance protections.

As we look toward Social Security’s future, two things are clear. First, the program faces financial challenges. Income disparities, lower birth rates, and increasing longevity (on average, albeit not for some disadvantaged groups) all pose challenges to the system’s finances. Since 1983, the Baby Boom generation has paid more into the program than was needed to pay current benefits, accumulating $2.8 trillion in reserves that will be slowly drawn down as Boomers continue to retire over the next two decades. If Congress does not take action before 2034, these reserves will be depleted, and revenues will only be able to cover about 79 percent of scheduled benefits. Congress should take action sooner rather than later to ensure the program’s long term solvency. And Congress must take action – e.g. by rebalancing Social Security's two trust funds – by the end of next year to ensure that the disability trust fund remains solvent for the next two decades.

Second, it is likely that Social Security will be more, not less critical to Americans’ retirement security in the coming decades. Defined benefit pensions are disappearing, replaced by individual 401(k)-style and IRA accounts. For decades, the wages of the typical worker have stagnated, and from 1979 to 2012, all aggregate income growth has gone to the top 10 percent of the income hierarchy. This has made it difficult for most working families to put aside significant savings into individual accounts: the typical household nearing retirement has accumulated only $14,500 in retirement savings.

Given these facts, it is likely that a very large share of American households will have little besides Social Security to rely on in old age, and that a significant share of seniors will forgo retirement altogether, taking us closer to the circumstances that reigned before Social Security’s passage – a period also characterized by high income and wealth disparities.

In this sense, Social Security may prove to be even more important to workers’ economic security in the coming decades than it has been throughout most of its first 80 years. For it to fulfill its purpose as a bulwark against economic insecurity, however, policymakers must enact measures to ensure its long-term solvency. That said, retirement policy alone cannot forestall retirement insecurity for many of today’s workers. The economy and wages must grow, and Social Security revenues and benefits must grow with them. Achieving such reforms will require the same kind of leadership that Franklin Delano Roosevelt exhibited in enacting Social Security in 1935.