The Social Security Act is the 1935 federal law that created the Social Security system

The Social Security Act is a law Congress passed on August 14, 1935, during the Great Depression. It set up the Social Security system — the federal insurance program that pays benefits to retired workers, disabled workers, and surviving family members of workers who have died. The law also created Medicare (the health insurance program for people 65 and older) and Medicaid (the joint federal-state program for low-income individuals), though those came later as amendments.

The Act did not invent the idea of old-age insurance. Germany had one since the 1880s. But the Social Security Act was the first time the United States created a national, mandatory insurance system funded by payroll taxes on workers and employers. It was designed to replace income lost due to retirement, disability, or death — not to be a complete retirement plan, but a foundation.

Understanding what the Act created helps explain why Social Security works the way it does today: why you pay into it through payroll taxes, why benefits are based on your earnings record, and why different categories of people receive different types of benefits.

Key Takeaways

  • The Social Security Act of 1935 created a federal insurance system funded by payroll taxes on workers and employers, not by general tax revenue.
  • The law established three main benefit categories: retirement benefits for workers 62 and older, disability benefits for workers who cannot work due to medical conditions, and survivor benefits for family members of deceased workers.
  • Social Security is a pay-as-you-go system, meaning current workers' taxes fund current retirees' benefits, not a personal savings account.
  • The Act has been amended many times since 1935, including changes to the full retirement age, the addition of Medicare and Medicaid, and adjustments to tax rates and benefit formulas.

Why Congress created Social Security in 1935

Before 1935, most American workers had no may provide income after they stopped working. Savings were wiped out by the stock market crash of 1929. Pensions existed for some railroad and government workers, but not for the majority. Families relied on children to support aging parents, or on charity and poorhouses.

The Great Depression made this system collapse. By 1933, roughly one-quarter of the workforce was unemployed. Elderly people had no income and no way to earn it. President Franklin D. Roosevelt's administration saw Social Security as both a moral response to suffering and an economic tool: if older workers retired, younger workers could take their jobs.

The Act passed with broad support. It was framed as insurance — you pay in while working, and you collect when you retire or become disabled — not as welfare. This framing mattered politically and shaped how Americans understood the program for decades.

What the 1935 Act actually covered

The original Social Security Act covered retirement benefits only. A worker who reached age 65 could receive a monthly payment based on their earnings history. The amount was not fixed; it depended on how much you had earned and how long you had worked.

The law excluded many workers. Farm workers, domestic workers, and the self-employed were not covered. Government employees had their own systems. Railroad workers had their own program. This meant that Black workers, who were concentrated in farm and domestic work in 1935, were largely left out of the original system.

The program was funded by a payroll tax of 1 percent on workers and 1 percent on employers, split on wages up to $3,000 per year. That cap meant high earners paid a smaller percentage of their total income than low earners — a feature that remains in the system today, though the wage cap has risen.

How the Act changed after 1935

Congress amended the Social Security Act many times. In 1939, just four years after passage, amendments added survivor benefits (for widows, widowers, and children of deceased workers) and benefits for the spouse of a retired worker. These changes reflected the reality that families, not just individuals, depended on a worker's income.

In 1956, disability benefits were added. Workers who could not work due to a medical condition could now receive benefits before retirement age, not just at 65. This was a major expansion — it meant Social Security was no longer just old-age insurance.

In 1965, Congress added Medicare (hospital and medical insurance for people 65 and older) and Medicaid (a joint federal-state program for low-income people) as amendments to the Social Security Act. Both programs are technically part of the Act, though they operate separately from the retirement and disability system most people think of as "Social Security."

The full retirement age — the age at which you receive your full benefit amount — has also changed. It was 65 in 1935. Starting in 2000, it began rising gradually, reaching 67 for people born in 1960 or later. This change was made in 1983 to address funding concerns.

How Social Security is funded under the Act

The Social Security Act set up a payroll tax system. Workers and employers each pay a percentage of wages into the Social Security Trust Fund. The current rate is 6.2 percent for workers and 6.2 percent for employers on wages up to a certain cap (the cap changes each year based on wage growth). Self-employed people pay both portions, 12.4 percent total.

This is not a personal savings account. The money you pay in does not sit in an account with your name on it. Instead, current payroll taxes pay current benefits. This is called a pay-as-you-go system. When you retire, your benefits are paid by workers who are working at that time. This works as long as there are enough workers paying in relative to the number of people collecting benefits.

The Act created a Trust Fund to hold reserves — money collected in years when tax revenue exceeds benefit payments. These reserves can be drawn down in years when benefits exceed tax revenue. The Trust Fund has been drawn down in recent years, and projections show it will be depleted sometime in the 2030s if Congress does not change the law. When that happens, incoming payroll taxes alone would cover only about 80 percent of scheduled benefits, unless Congress acts.

Who receives benefits under the Act today

Social Security now covers three broad categories of beneficiaries, all created or expanded through amendments to the original 1935 Act.

Retired workers can claim benefits as early as age 62, though the benefit amount is reduced if you claim before your full retirement age. Your full retirement age depends on your birth year and ranges from 66 to 67. You can also delay claiming until age 70 to receive a larger benefit.

Disabled workers of any age can receive benefits if they have a medical condition expected to last at least 12 months or result in death, and if they have worked long enough to be insured under Social Security. The definition of disability is strict — you must be unable to do substantial work, not just unable to do your previous job.

Survivors of a deceased worker can receive benefits. This includes the worker's widow or widower (at 60 or older, or at 50 if disabled), children under 19 (or 19 if still in high school), and dependent parents age 62 or older. A one-time lump-sum payment of $255 is also paid to the worker's spouse or minor children.

How the Act defines your benefit amount

Your Social Security benefit is not a flat amount everyone receives. It is based on your Primary Insurance Amount (PIA), which is calculated from your earnings record. The formula is progressive — it replaces a higher percentage of earnings for low-wage workers than for high-wage workers.

To be insured for retirement benefits, you generally need 40 credits of work history. You earn one credit for each $1,640 of wages in a year (this amount changes annually). So you can earn up to four credits per year. Most people reach 40 credits after about 10 years of work.

Your benefit is based on your highest 35 years of earnings. Years with no earnings count as zero, which lowers your average. If you worked fewer than 35 years, zeros are included in the calculation. This is why working longer can increase your benefit — you replace a zero year with an earnings year.

Frequently Asked Questions

Is Social Security the same thing as the Social Security Act?

No. The Social Security Act is the law passed in 1935. Social Security is the program created by that law. The Act also created Medicare and Medicaid as amendments. When people say "Social Security," they usually mean the retirement and disability insurance program, not the entire Act.

Why does Social Security take money from my paycheck if it is supposed to be insurance?

The Social Security Act set up a mandatory insurance system, like car insurance or workers' compensation. You pay in while working so you are insured against the risk of losing income due to retirement, disability, or death. The payroll tax is how the system is funded. It is not optional — it is a condition of coverage.

Can the government change Social Security?

Yes. Congress can amend the Social Security Act at any time. It has done so many times since 1935 — to add disability benefits, to raise the full retirement age, to change tax rates, and to adjust benefit formulas. Any major change would require a new law passed by Congress and signed by the President.

Does Social Security cover everyone who works?

Almost everyone. The original 1935 Act excluded farm workers, domestic workers, and the self-employed, but those exclusions were removed in later amendments. Today, about 96 percent of workers are covered. Some government employees who have their own pension systems may not be covered by Social Security.

What happens to my Social Security taxes if I die before I retire?

Your family may receive survivor benefits if you have worked long enough to be insured. Your widow or widower, children, and dependent parents may all be may be able to access. A one-time lump-sum payment of $255 is also paid. The money does not go back to you or sit in an account — it funds the survivor benefit system for all workers.