Source: Social Security Administration Web site — History 

Civil War Pensions: America's First "Social Security" Program

Although Social Security did not really arrive in America until 1935, there was one important precursor that offered something we could recognize as a social security program to one special segment of the American population. Following the Civil War, there were hundreds of thousands of widows and orphans, and hundreds of thousands of disabled veterans.

In fact, immediately following the Civil War a much higher proportion of the population was disabled or survivors of deceased breadwinners than at any time in America's history. This led to the development of a generous pension program, with interesting similarities to later developments in Social Security. The first national pension program for soldiers was actually passed in early 1776, prior even to the signing of the Declaration of Independence.

The Seeds that Created Social Security

Between the years of 1890 and 1920, the United States experienced important change in its social fabric. The Industrial Revolution created a more urban America, shifting population away from farms and into cities. In fact in 1890, only 28% of the population lived in cities. By 1930 this percentage had exactly doubled, to 56%.

This shift away from an agrarian lifestyle also changed the face of the American family. Rural families were generally extended, with multiple generations living together. In this larger collective, when a family member became elderly, ill or disabled, the group was better able to pull together to take care of this person. With the population shift into urban areas, the nuclear family became more of the norm. 

Thanks primarily to better health care and sanitation and the development of effective public health programs, Americans began to live significantly longer. In three short decades, 1900-1930, average life spans increased by 10 years. This was the most rapid increase in longevity in recorded human history. The result was a rapid growth in the number of senior citizens to 7.8 million by 1935.

The net result of this complex set of demographic and social changes was that America was older, more urban and more industrial, and fewer of its people lived on the land in extended families. The traditional strategies for the provision of economic security were becoming increasingly fragile.

Social Security is Created

The Social Security Act was signed into law by President Roosevelt on August 14, 1935. In addition to several provisions for general welfare, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement.

Who Benefited Initially

In the beginning, most women and minorities were excluded from the benefits of Social Security. Job categories that were not covered by the act included workers in agricultural labor, domestic service, government employees, and many teachers, nurses, hospital employees, librarians, and social workers. The act also denied coverage to individuals who worked intermittently. In its early days, these exclusions exempted nearly half of the working population from benefiting from Social Security.

First Payments in Lump Sum

From 1937 until 1940, Social Security paid benefits in the form of a single, lump-sum payment. The purpose of these one-time payments was to provide some "payback" to those people who contributed to the program but would not participate long enough to be vested for monthly benefits. The first payment ever made by Social Security was to Ernest Ackerman, who retired the day after it was signed into law.  His one-time, lump sum payment was for 17 cents.

Monthly Payments & Cost of Living Adjustment (COLA)

On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont, in the amount of $22.54. In 1950 a cost of living allowance (COLA) was added to Social Security. Previous to this, distributions had remained the same for the '40s.

History of Distributions

In 1940, benefits paid totaled $35 million. These rose to $961 million in 1950, $11.2 billion in 1960, $31.9 billion in 1970, $120.5 billion in 1980, and $247.8 billion in 1990. All figures are in nominal dollars, not adjusted for inflation. In 2009, nearly 51 million Americans received $650 billion in Social Security benefits.