Due to several factors, primarily changing demographics in the U.S., the trustees of the Social Security Trust Fund—the surplus of funds created by collecting more tax dollars than are being paid out—project that it will be depleted by 2034 without meaningful entitlement reform. Given that Social Security has served as the foundation of most American workers’ retirement income for decades, many current workers and young retirees are concerned about what the future of Social Security looks like and how it will impact their retirement plans.
A Brief History of Social Security
The Social Security Act, which, among several provisions for general welfare, created a social insurance program designed to pay retired workers age 65 or older a continuing income, was signed into law by President Franklin D. Roosevelt in 1935. The program was designed for workers to fund their own benefits through additional income taxes. Originally, Social Security only provided retirement benefits to workers with a history of earned income, but in 1939, two amendments to the program extended benefits to dependents and survivors of those with earned Social Security benefits. Regular, ongoing monthly retirement benefits started in January 1940.
The program remained virtually unchanged until the 1950s, when Congress passed legislation to increase monthly benefits to offset the effects of inflation and expand Social Security coverage to disabled workers. Social Security began to experience financial stress in the 1970s as U.S. economic conditions worsened, and the program faced its first short-term financing crisis in the early 1980s. In response, President Ronald Reagan appointed the Greenspan Commission to make recommendations for legislative changes that would address the program’s funding issues. As a result, several changes were made to Social Security in 1983, including the partial taxation of benefits and gradually raising the program’s full retirement age from 65 to 67. The goal of these reforms was to solve the program’s immediate financing problems, while creating a surplus of funds over the next few decades to prepare for the retiring baby boomer generation, which was expected to be a drain on the program’s reserves.