65 years ago this week (31 January), Ida Mae Fuller -- a secretary in the little town of Ludlow, Vermont -- received the first Social Security check, in the amount of $22.54.
Miss Fuller was one lucky woman, according to University of Vermont economics professor Art Woolf. “She lived to a ripe old age of 100,” he says. “So she collected Social Security for 35 years after paying in for only three. And she collected almost $25,000.” That was 1,000 times the amount of money she had put into the system in the brief time it was in effect before she retired.
The Social Security Act of 1935 was one of the measures in what President Roosevelt called his “New Deal” -- launched in the depths of America’s Great Depression. One quarter of the U.S. labor force was out of work, two million adult men roamed the country as unemployed hobos, and few people were lucky enough to have jobs that provided retirement pensions. Populists and social crusaders were clamoring for a share-the-wealth system in which workers and companies together would contribute money to help prevent poverty among the elderly.
At first, notes Professor Woolf, there were 40 workers paying into the vast Social Security Trust Fund for every retiree who was pulling benefits out. “So their taxes didn't have to be that high,” he says. “Because the way Social Security works, the current workers pay their Social Security taxes, and they go to the current retirees. They don't stay in a pot, waiting for you to retire.”
But the demographics have changed. “The birth rate in the United States has gone down,” says Professor Woolf. “We have relatively more retirees and relatively fewer workers. So today there's only about three workers for every retiree. And the other thing is that, even though Ida Mae Fuller lived to be 100, most retirees in 1940 didn't live very long after age 65. So we've got fewer people paying in compared to the number of people who are taking money out, and we also have people living longer, so they're collecting more over their lifetimes.
In the 1980s, a presidential commission headed by Alan Greenspan, who is now chairman of the Federal Reserve banking system, forecast a Social Security “train wreck.” The panel foresaw a glut of older workers who would be retiring at a time when there would not be enough new workers on the job to pay for the Social Security benefits of their older colleagues.
In response, the commission did some tinkering: “They increased the taxes that working people pay,” says Art Woolf. “And they also pushed back the retirement age so that someone who's 40 years old today cannot expect to get full Social Security benefits until he's 67.”
That kept problems out of sight and out of mind for a while -- until another commission in the 1990s warned that the trust fund was quickly heading toward insolvency. But politicians were reluctant to make further changes. In the face of a powerful army of senior citizen voters, Social Security benefits were seen as the economic equivalent of the deadly third rail on electric transit systems: touch them and die.
Now President Bush is backing a proposal that would allow workers to set aside a part of their Social Security tax contributions into private accounts earmarked for their own retirements -- and be allowed to invest that money in stocks rather than traditionally low-paying government bonds:
Aspects of the plan are upsetting politicians from both the right and the left. Some conservatives – even within President Bush’s own Republican Party -- are concerned about government-sponsored investment in the stock market, “They’re afraid that the government is going to meddle in the market, put all kinds of political conditions on how they invest, and so forth…so they’re very hostile to that,” says Stephen Sass, a historian at the Center for Retirement Research at Boston College.
Members of the more liberal Democratic Party are anxious about the risk inherent in individual stock accounts. ”Social Security is supposed to be about a secure retirement income, and we're introducing a lot of risk into this income,” notes Mr. Sass.
Stephen Sass says that, even if President Bush's proposals do not prevail in the short run, as a safely re-elected chief executive, he is likely to press the Social Security issue into a heated public debate.