Eighty years ago this week — on August 14, 1935 — President Franklin D. Roosevelt signed the Social Security Act. It created a national old-age retirement program in the United States for the first time. It was an investment that continues to pay dividends even today.
At the time, 30 (of the then 48) US states had developed their own old-age retirement programs. These plans experienced a number of problems. Unlike the Federal government, states must balance their budget annually. In hard economic times, such as the Great Depression, tax revenues fall; states then feel pressure to cut retirement benefits in order to keep their budget balanced. Another problem was that firms can move production facilities to states with lower taxes. This, too, pressures states with generous retirement programs to reduce taxes and benefit levels.
A national program solved these problems.
Over the past 80 years, critics have complained that Social Security is an unfunded entitlement that will bankrupt the country; however, this is not the correct way to view Social Security. It is more appropriate to view it as an insurance program. It protects Americans from financial disaster during a long retirement. Benefits are guaranteed for life and are increased each year to keep up with inflation. Social Security also provides financial support to surviving spouses of deceased workers and to their children until they reach 18 (19 if still in high school).
There are also some macroeconomic benefits from the program. By enabling people to retire, rather than having to work until they die, jobs open up for younger workers. Both retirees and workers receive money to spend and help grow the economy.
Despite all this, undoubtedly the major achievement of Social Security is that it has enabled millions of Americans to retire without becoming poor. For this reason it is the most popular of all government programs.
Yes, there are problems that still need to be addressed. The program is projected to run small deficits in the future due to the retirement of the Baby Boom generation, as well as slow population growth. And the program does need to be modernized to deal with life in the 21st Century, to reflect lots of self-employed individuals and working women.
But given all the good it has done, we should all wish Social Security a happy 80th birthday and many happy returns.