September 11, 2013

How Did We Get Here?

With a blog entitled, Satisfying Retirement, it is rather obvious what my focus is. I have chosen to write about a subject I have been experiencing for over a dozen years. While not everyone is happy with the word retirement, we all understand what it means. At the same time there is serious debate  about its future, whether the whole concept of someone leaving the workforce at a set age remains valid in today's world.

For this post, I thought it would be interesting to look at how the whole idea of "retiring" started. If we could flash back about 80 years we wouldn't find anything like retirement. With a mostly rural society, folks worked on the farm until they couldn't anymore and then sat in a rocker while the younger family members took up the slack.

Those in factories or retail worked until their health gave out and they went home to a rather uncertain future. With no company pensions or government safety net, and little ability to save much during the working years, the "oldsters" were depending on being cared for by the rest of the family until death.


Things changed rather radically in 1935. The Social Security Act was signed into law in August of that year. Taxes were collected for the first time a little less than two years later and the first one-time, lump-sum payments were made in January, 1937. The maximum lump sum payments was $315, but the average was under $100. While not calling it that, these initial lump sum payments were meant for burial and funeral costs, not retirement. Regular ongoing monthly benefits started in January 1940. Note that such a massive social program took several years to be fully rolled out, not unlike the new health care laws.

While the new law didn't help older workers, suddenly younger workers had a guaranteed income  at a defined point in their future. That income was never designed to be someone's total income after work,  just a supplement. Unfortunately, as we all know, today too many of our fellow citizens are forced to live completely off Social Security. That leads to a rather sparse existence, but it is substantially better than the way things used to be.

Spousal benefits were not part of the original law. Retirement benefits were only paid to the primary worker. In 1939 the law was amended to add survivor, spousal, and children's benefits. In 1956 disability benefits became part of the program.

So, the concept of retirement that we all understand began in 1935. The urban legend that 65 was set as the full retirement age because most people died before then so the government was off the hook isn't true. My research shows 65 was picked because some European countries used that age so America just followed along.

Of course, as our life span has increased, the "full" retirement age for Social Security has crept up a few years, though not nearly enough to keep up with increased longevity. That is part of the reason for the constant talk of Social Security's fiscal future. And, it is important to remind ourselves that the original intent of Social Security wasn' t a retirement plan, just a supplement.

Importantly, as originally designed the government's role was simply that of the fund's administrator, rather than its payer. How things have changed over the past few generations! Congress has rather dramatically changed both the intent and funding of the program over the years, resulting in both a change in understanding of the role of Social Security and its funding.

But, back to the original point: retirement in any form and however paid for happened because our society changed. The rural model was replaced with an urban model. Families caring for family members until death was replaced with the idea that we were responsible for our own future well-being. Then, government decided that we may not be capable of taking care of ourselves on our own and turned Social Security into a retirement program instead of just a supplemental program.

As poet Robert Frost wrote in his "The Road Not Taken, "and that has made all the difference."

Lesson over...class dismissed.

18 comments:

  1. Fascinating! I was very young when my grandfather retired from a life of farming. He started driving a school bus to pick up a little extra income to supplement his social security retirement.

    I'm concerned about the younger generations behind us, who may not have social security. I remember when I was in my teens, my dad encouraged me to find a job with a pension. (His pension provided a very secure retirement for him and my mother.) Somehow, I managed to listen and take his advice. Unfortunately those defined benefit plans are becoming a rare find, just at a point in time when social security will likely be going through some changes. I wouldn't be surprised if eventually there is means testing.

    Thanks for a thought provoking post. I learned a lot about the history of social security.

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    1. I learned a lot, too, just doing the basic research for this post. And, I woke up this morning to find a Social Security deposit in my bank account, right on time. It is a good feeling.

      Like you, I worry about where it is all heading. My kids and grandkids will have a very different world, I believe.

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  2. Retirement. What a great idea! I'm glad I'm alive after 1935!

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    1. FDR had a fight every bit as tough as Obama has had with the health care law. I don't think anyone would want to eliminate Social Security now. It would be interesting to still be around 60-80 years from now and see what the feeling is about so-called Obamacare.

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  3. I admire your research, Bob. It's comforting to know there are some (sometimes small) rewards for contributing to a better society.
    b

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    1. I was most surprised at the information about the lump sum payment as the program began. Thanks, Barb

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  4. Bob, good post. I would also like to point out that a very important milestone for SS was during LBJ's time in office, when he became the first President to raid the SS coffers to fund an increasingly unpopular Vietnam War (I believe Johnson did it in the late 60s). Since then SS has been on shakier ground; before that it was self-funding with a true "lockbox" system in place. Now SS revenues are just used to fund any special interest program or ongoing need of the Federal government, regardless of whether the Dems or Repubs are running the show.

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    1. You are right: the money in the Social Security fund is like a giant cookie jar that is raided whenever convenient, with payback someone else's problem.

      At the moment I have little confidence that there is any political will to fix the system. Since Congress men and women don't participate in SS, they have little vested interest in it's health, unless it directly affects their election.

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    2. As I read your post I was thinking about what Chuck Y mentioned....SS was set up to be a pretty good self-funded plan....and I also agree that our Congress has no real personal vested interest in fixing what was messed up by "hands constantly reaching in the cookie jar". Without becoming political, I will just close with I think we had a good system and sure wish we could get back there.

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    3. There is more than enough "blame" to go around, including the public, who fight tooth and nail whenever an adjustment is suggested to bring the program in line with the new world reality.

      Yes, it would be nice to go back, but.......

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  5. My mother remembers my grandparents finding the paperwork to enter in SS. Good thing, since my grandfather passed away in 1943. Since my grandparent's store was in my grandfather's name---my mother's family lived on SS, the community kindness and the garden for the two years it took to get the store back from the bank. Thank goodness they lived in Phoenix. It was a small community and they were cared for.
    it is a broken system, but it can be fixed. I just wish people had the gumption to fix it!

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    1. Good story and lesson for us all. Thanks, Janette.

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  6. Good review of SS history, Bob. But one oops--Your comment to Chuck Y that members of Congress don't pay into Social Security is incorrect. Their retirement system was changed some years back to require that they participate in SS.

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    1. Good catch, Dick. You are absolutely correct. All members of Congress started paying SS taxes in 1984. I did the research on the post. I should have done so on my answer to Chuck.

      I stand properly corrected.

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  7. In my blog in November of 2011 I touched on the question of how we got retirement at the age of sixty-five. Good or bad we now seem stuck on that number. See my blog link below:

    http://65andalive.blogspot.com/2011/11/retirement-is-light-at-end-of-tunnel.html

    Now as I approach 70 I am only starting to cut back a little (one week off per month in 2014 is my goal). It is seems I am at 65 + 5. Like I distant ancestors I seem may work until I can't. Good or bad? As long as I am enjoying work and leisure time I guess it is good.

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    1. Yes, it is good to work at something you enjoy, whether paid or not.

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  8. Back in 1984, when forced to make a choice, my husband kept his government retirement under the old pension system, rather than tying it to social Security. I'm so glad he did! I collect pretty near the minimum Social Security from my spotty, part-time working life (mostly I stayed home and raised my kids), and between that and his pension, we're secure enough, though very far from rich.

    I'm very worried about my children and grandchildren, though. With falling salaries, very high unemployment, smaller families, pensions nearly extinct, and retirement plans subject to investment failures, how are they going to live? Surely workers making average-and-below salaries can't save enough on their own to provide for lives after retirement that are likely to be much longer than those of their grandparents. If the present mess isn't fixed, what are they going to do?

    Not actually Anonymous, just can't get That Other Jean to work for Name?URL today.

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    1. That Other Jean,

      Like you, my wife, Betty, only worked part time most of the time because we had made the decision she was going to be a full time stay-at-home mom until the kids were well established at school. Her social security will be minimal, so her best bet is to wait until her full retirement age in another 61/2 years and then get a spousal benefit equal to half my monthly check.

      Your concern for future generations is right on the mark. How does someone save when they are close to a paycheck-to-paycheck existence? I don't think the economy will ever go back to the way it was. Businesses have figured out how to cut employees and expenses and still make money. Technology has changed the whole face of the game.

      We may end up going back to a rural model inside an urban environment: multi-generational care for each other.

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