Social Security Turns 90 — Five Important Things to Know

elderly couple celebrating 90th birthday together. 90 years anniversary in the old age

(Image credit: Getty Images)

Social Security turns 90 years old on August 14. President Franklin Delano Roosevelt signed the program into law in 1935 during the Great Depression. Today, this federal program provides benefits to 70 million retired workers, disabled workers, and their families.

At the time the program was enacted, the world was still in the throes of the Great Depression, and, in the absence of welfare programs, poverty was rampant. At the height of the Depression in 1933, 24.9% of the total workforce (12,830,000 people) was unemployed. Things were better for those still employed, but not by much. Wage income for workers fell 42.5% between 1929 and 1933.

Social Security was enacted as an anti-poverty program, and it continues to keep many older Americans from falling below the poverty level today. Over the years, the program was expanded to pay disability benefits to workers and their dependents. Medicare was added in 1965.

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Social Security is projected to become insolvent in 2033, which would lead to a forced reduction in benefits. As that deadline comes closer, there will be many proposals on how to fix the program. By understanding the basics of Social Security, you'll be able to evaluate these solutions and avoid the fear-mongering. Having a greater understanding of the basics will also be helpful to you as you think about your approach to claiming Social Security benefits.

Here are five important facts about how the Social Security program works:

A social security card rests in a birds nest conveying the concept of social security income being considered an intregal part of ones financial nest egg.

Signed into law on August 14, 1935, by FDR, Social Security was an important part of the New Deal; it was the first national social insurance policy to help ensure that older Americans would have a stable source of income after retiring. Remember, this was a world before pensions, IRAs, and 401(k) accounts.

During the worst of the Great Depression, one-third to one-half of older Americans were dependent on family or friends for support. Today, without Social Security benefits, 37.3% of older adults would have incomes below the official poverty line, according to the Center for Budget and Policy Priorities (CBPP).

Although often thought of in the context of retirement, the program was expanded in 1956 to include Social Security Disability Insurance (SSDI); this program provides financial support for disabled workers and their dependents. In 2023, 6.2 million children under age 18 lived in families that received income from Social Security. The CBPP says that 959,000 children are lifted above the poverty line by these payments.

Social Security is a pay-as-you-go program, meaning that contributions from current workers cover the cost of benefits going to current beneficiaries, as opposed to an advance-funded system where contributions from workers are set aside for future benefits.

Social Security is funded separately from the rest of the federal government, primarily through a dedicated payroll tax. Employers and employees each pay 6.2% of wages up to the taxable maximum of $176,100 in 2025, while the self-employed pay the entire 12.4%. The program also receives funds from an income tax on Social Security benefits paid by higher-income beneficiaries, as well as income generated by the investment of the trust fund reserves in non-marketable U.S. Treasury securities.

Most of Social Security’s funding comes from worker and employer contributions. In 2023, 91% of financing came from FICA taxes, adding $1.233 trillion to the fund. A smaller share comes from income taxes that some higher-income beneficiaries pay on their benefits and accounts for 4% or $51 billion of deposits. The remaining 5% or $67 billion comes from interest on Treasury securities held in the Social Security trust fund.

Puzzle of a hundred-dollar bill on a wooden background.

Congress has more of an oversight role; until 1975, annual benefit increases were determined by the legislature. The first cost-of-living adjustment (COLA) was 8.0% and was applied to benefits in June of 1975. Beginning in 1983, COLAs were effective with benefits payable for December.

Social Security benefits are not subject to the annual budget appropriations process or budget reconciliation. However, Congress can decide to amend the Social Security Act to make changes to the program, as it did in January 2025 when it increased benefits for some public-sector workers by passing the Social Security Fairness Act (SSFA).

Commonly referred to as the "third rail of politics," significant changes to the program are rare. The last major reforms were enacted over four decades ago, in 1983, led by the Greenspan Commission. That resulted in the Social Security Amendments of 1983, which provided for a combination of cuts and tax increases.

What was the result of the Amendments? The retirement age has been raised over 42 years from 65 to 67, self-employed workers now pay a combined rate equal to 100% of what employers and employees pay, and benefits are taxable for those with incomes above certain thresholds.

Loose change and coins inside a glass jar to represent lack of retirement savings in Social Security Trust fund

The Social Security trust funds are financial accounts in the U.S. Treasury. Social Security taxes and other income are deposited in these accounts, and monthly benefits are paid from them. Money that is not needed to pay current benefits or administrative costs is, by law, invested in special Treasury bonds that are guaranteed by the U.S. Government. A market rate of interest is paid to the trust funds on the bonds they hold, and when those bonds reach maturity or are needed to pay benefits, the Treasury redeems them.

There are two separate Social Security trust funds: the Old-Age and Survivors Insurance (OASI) Trust Fund pays retirement and survivors benefits, and the Disability Insurance (DI) Trust Fund pays disability benefits. They are often referred to together as “the trust fund.” The Social Security trust fund can be built up or drawn down to manage fluctuations in the sizes of the worker and beneficiary populations.

Time running out concept for Social Security trust fund with alarm clock approaching midnight and face replaced by card and cash

5) What happens if the trust fund runs out?

The looming insolvency issue for the two Social Security trust funds has caused some beneficiaries to file earlier than planned, leading to a spike in applications. If Congress does not act before the Social Security trust fund (OSAI) becomes depleted in the first quarter of 2033, current revenues would cover 77% of current benefits, leading to a reduction in benefits of 23%.

Cuts would happen automatically, because Social Security is prohibited by law from borrowing. However, it is unlikely that Congress would allow Social Security beneficiaries to lose upwards of 20% of their benefits overnight. Congress might, however, keep kicking the can down the road until forced to act.

Social Security is not going bankrupt and will not stop paying benefits. As discussed above, the majority of benefits are paid with current contributions to the trust fund. Unless people stop paying their employment taxes, we will have income to fund benefits. At worst, we face reduced benefits with beneficiaries receiving only 77% of their full benefit.

Currently, the average monthly Social Security check for retirees is $2006.69 as of July; a 23% cut would translate into losing almost $461.54 per month, or $5,538.46 per year.

Donna joined Kiplinger as a personal finance writer in 2023. She spent more than a decade as the contributing editor of J.K.Lasser's Your Income Tax Guide and edited state specific legal treatises at ALM Media. She has shared her expertise as a guest on Bloomberg, CNN, Fox, NPR, CNBC and many other media outlets around the nation. She is a graduate of Brooklyn Law School and the University at Buffalo.