The Social Security Act was a federal law passed in 1935 that created the Social Security program

The Social Security Act, signed into law by President Franklin D. Roosevelt on August 14, 1935, established a system of insurance and information programs during the Great Depression. The law created what we now call Social Security — a federal program that collects payroll taxes from workers and employers, then pays benefits to retirees, disabled workers, and survivors of deceased workers. It also created separate programs for unemployment insurance and aid to elderly and blind people who did not may have access to for the main program.

The Act was written as a response to mass poverty among older Americans. Before 1935, there was no national retirement system. When workers became too old to work, they relied on their families, charity, or local poorhouses. The Act changed that by creating a permanent, federally funded system that would pay monthly benefits to workers who had paid into it during their working years.

The law has been amended many times since 1935 — most significantly in 1956 (when it added benefits for disabled workers and their families) and in 1965 (when it added Medicare). The basic structure, however, remains the same: workers and employers pay taxes, the government holds that money in trust, and the government pays it out as benefits to people who meet the program's rules.

Key Takeaways

  • The Social Security Act of 1935 created a federal insurance program funded by payroll taxes from workers and employers.
  • The program was designed to pay monthly benefits to workers aged 65 and older, and was later expanded to include disabled workers and survivors.
  • The Act also created separate programs for unemployment insurance and direct aid to elderly and blind people who did not may have access to for Social Security itself.
  • The law has been changed many times, but the core system of collecting payroll taxes and paying monthly benefits has remained in place for nearly 90 years.

Why Congress passed the Social Security Act in 1935

The Great Depression left millions of Americans without work or savings. Elderly people who had lost their jobs had no way to support themselves. Families that had been stable for generations suddenly could not feed their children. Local charities and state governments ran out of money. President Roosevelt and Congress decided the federal government had to act.

The Act was built on the idea that workers should pay into an insurance fund during their working years, then draw from it when they retired or became unable to work. This was different from charity or welfare — it was presented as insurance, something workers had earned through their own contributions. The law required both workers and employers to pay a tax on wages, and that money would be held in a trust fund to pay benefits later.

The program began collecting taxes in January 1937 and paid its first monthly benefit in January 1940. The first beneficiary was Ida May Fuller, a retired legal secretary from Vermont, who received a check for $22.54. By the end of 1940, about 222,000 people were receiving monthly Social Security checks.

What the original 1935 Act covered

The original Social Security Act created several separate programs. The main program, called Old-Age Insurance, paid monthly benefits to workers aged 65 and older who had worked in covered jobs and paid the required taxes. A worker had to have worked in a covered job for at least 40 quarters (10 years) to receive benefits.

The Act also created Unemployment Insurance, a joint federal-state program that paid temporary benefits to workers who lost their jobs through no fault of their own. Each state ran its own unemployment program, but the federal government provided funding and set minimum standards.

A third part of the Act provided federal money to states to help them pay direct information to elderly people who were poor and did not may have access to for Old-Age Insurance. This was called Old-Age information. A similar program, Aid to the Blind, helped blind people who were poor. These were welfare programs, not insurance — they did not require prior contributions and were based on need.

The Act did not cover all workers. Farm workers, domestic workers, and self-employed people were excluded. Many Black workers in the South were excluded because they worked in agriculture or domestic service. This meant that when the program began, about half of all workers in the United States were not covered.

How the Social Security Act was expanded after 1935

The original Act covered only retired workers. In 1939, Congress amended it to add survivors benefits — monthly payments to the widow and children of a worker who died. This turned the program from straightforward retirement insurance into family insurance.

In 1956, Congress added Disability Insurance, allowing workers who became disabled before retirement age to receive monthly benefits, along with their spouses and children. This was a major expansion because it meant Social Security was no longer just for retirees — it also protected workers and their families against the loss of income from disability.

In 1965, Congress created Medicare as part of the Social Security Act. Medicare is health insurance for people aged 65 and older, and it is funded separately from retirement benefits through its own payroll tax. In the same year, Congress also created Medicaid, a program for low-income people of any age, though Medicaid is not technically part of Social Security.

Over the decades, Congress has also expanded coverage. Farm workers were added in 1954. Domestic workers were added in 1954. Self-employed people were added in 1954. By the 1960s, nearly all workers were covered. The law has also been amended to change the retirement age, adjust how benefits are calculated, and change the tax rate.

How Social Security is funded

Social Security is funded by a payroll tax collected from workers and employers. In 2024, the tax rate is 12.4 percent of wages for retirement and disability benefits — 6.2 percent paid by the worker and 6.2 percent paid by the employer. Self-employed people pay both portions, for a total of 12.4 percent. There is a wage cap: in 2024, only the first $168,600 of a worker's annual wages are subject to the tax.

Medicare has its own separate payroll tax of 2.9 percent (1.45 percent from the worker, 1.45 percent from the employer), with no wage cap. High-income workers pay an additional 0.9 percent Medicare tax on wages above certain thresholds.

The money collected is held in trust funds — separate accounts managed by the U.S. Treasury. There is an Old-Age and Survivors Insurance Trust Fund and a Disability Insurance Trust Fund. When the government collects more in taxes than it pays out in benefits, the extra money is invested in U.S. Treasury bonds. When the government pays out more than it collects, it draws down the trust fund balance.

The difference between Social Security and other Depression-era programs

The Social Security Act created insurance programs (Old-Age Insurance, Disability Insurance, Survivors Insurance) and also created welfare programs (Old-Age information, Aid to the Blind). This distinction still matters today. Insurance programs are based on prior contributions — you pay in, and you receive benefits based on what you paid. Welfare programs are based on need — you receive benefits if your income is low enough, regardless of whether you paid taxes.

Social Security retirement and disability benefits are insurance. You must have worked in covered employment and paid payroll taxes to receive them. Your benefit amount is based on your earnings record. You can receive benefits even if you are wealthy, because you earned them through contributions.

Other programs created around the same time, like Supplemental Security Income (SSI), are welfare. You must have low income and few resources to receive SSI, even if you are disabled or elderly. The amount you receive depends on your current financial situation, not on past contributions.

How the Social Security Act changed American retirement

Before 1935, retirement was not a normal part of American life for most workers. People worked until they could not work anymore, then they depended on family or charity. The Social Security Act created the idea that workers could retire at a set age and receive a regular income from the government. This changed how Americans planned their lives and how families organized themselves.

The Act also established the principle that the federal government had a responsibility to protect workers and their families against the loss of income from old age, disability, or death. This principle has shaped American social policy for nearly 90 years. Every major social insurance program created since — unemployment insurance, workers' compensation, disability insurance — has been built on the same model that Social Security established.

The program has also been a major force in reducing poverty among elderly Americans. In 1935, about 35 percent of Americans aged 65 and older lived in poverty. By 2023, that rate had fallen to about 10 percent, largely because of Social Security benefits. For many retirees, Social Security is their main source of income.

Frequently Asked Questions

Did Social Security cover all workers when it started in 1935?

No. The original Act excluded farm workers, domestic workers, and self-employed people. This meant about half of all workers were not covered. Farm and domestic workers were added in 1954, and self-employed people were added the same year. By the 1960s, nearly all workers were covered.

What was the first Social Security benefit payment?

The first monthly Social Security benefit was paid in January 1940 to Ida May Fuller, a retired legal secretary from Vermont. Her check was for $22.54. The program had been collecting taxes since January 1937, but benefits did not begin until three years later.

How did Social Security change in 1956?

In 1956, Congress added Disability Insurance to the program. This allowed workers who became disabled before retirement age to receive monthly benefits, along with their spouses and children. Before 1956, Social Security only paid benefits to retired workers and their survivors.

Is Social Security the same as Medicare?

No. Social Security pays monthly cash benefits to retirees, disabled workers, and survivors. Medicare is health insurance for people aged 65 and older. Both were created by amendments to the Social Security Act, but they are separate programs with separate funding and separate rules.

Why did the government create Social Security instead of letting people save for retirement on their own?

The Great Depression showed that individual savings were not enough. Millions of people who had saved for retirement lost their savings when banks failed. The government created Social Security as insurance — a way to may provide that workers would have income in retirement, regardless of what happened to the economy or their personal savings.