The Social Security Administration issued its first check ever on Jan. 31, 1940, for $22.54. At that time, the minimum wage was 30 cents per hour. A new car cost about $800, a loaf of bread was 10 cents and the average annual salary was $1,900. The recipient of that first retirement benefit check, Ida May Fuller, was a 66-year-old retiree who paid into the system during the final years of her career and the infancy of the Social Security Administration.
The core philosophy of the then-nascent program remains the same today: Workers contribute to the system via payroll tax during their career and collect retirement benefits in their “golden years.” That said, the retirement landscape surrounding Social Security has shifted tremendously. Today’s workers face a new set of challenges, decisions and circumstances than those faced by the first wave of Social Security beneficiaries in the 1940s. Here’s a look at some of the differences.
We’re living longer. In the U.S., the average life expectancy at birth in 1950 was 68.2 years. By 2007, it was 77.9 years old. So what? Today’s retirees need to find a way to make their money last longer and cover more expenses. Not easy on a fixed income.
There are more retirees. In 1940, the U.S. had a population of 132.2 million, compared to 308.7 million in 2010. Coupled with medical advances and socioeconomic development, this increase has seen the number of Americans aged 65 or older leap from 9 million in 1940 to 34.9 million in the year 2000. These shifting population dynamics have led to challenges for benefit administrators (like the Social Security Administration) and contributed to the increasing cost of late-in-life medical care.
Pensions are harder to come by. In the old days, retirees could often count on private pensions through their employers (via defined benefit plans). These guaranteed streams of income provided stability during the golden years. Turbulent markets and shifting demographics have made pensions far less feasible for employers. Accordingly, the onus to save for retirement falls largely on workers—via defined contribution plans (like a 401k or 403b). Savings rates, investment selection and human behavior can all impact our nest egg, for better or for worse.
Still, Social Security plays a significant part in the retirement planning process. Deciding how and when to file for benefits is interwoven with the timing and scope of work reduction and the pursuit of personal interests. Personal savings, cost of living and family health history are also factors.
In light of the above, the concept of “retirement” has shifted over the years as workers and retirees have adapted to new qualitative and quantitative conditions. Rather than abruptly halting work, many of my clients choose to take a glidepath or gradual reduction over a number of years. Others focus on lower-earning work in their post-career lives, pursuing interests or passions while pulling in some extra income. A focus on cognitive engagement, social enhancement and physical fitness have entered the retirement conversation in a meaningful way.
Ida May Fuller cashed her last Social Security check when she was 100 years old—receiving $22,888.82 in total benefits after a lifetime contribution of only $24.75. Let’s see if we can follow her lead.
Scott Mazuzan is a certified financial planner for F.L. Putnam Investment Management Company, an independent firm that provides investment management and financial planning services. You can follow his blog at www.flputnam.com/blog.