The introduction of Social Security in 1935 created the United States’ first social insurance system.   Popular in Europe at the time, social insurance has two major components:  it protects citizens against a defined risk, and takes in consideration social objectives rather than individual self-interest.

The advent of Social Security in the U.S. cannot be fully understood unless taken in the context of the Great Depression, which began after the 1929 stock market crash. The elderly were hit hard as the state welfare systems in place for them at the time were inadequate.

In 1934, President Franklin Roosevelt proposed a system of social security to Congress.  He then established the Committee on Economic Security, a panel of experts who investigated the problem of economic security in the U.S.  They argued that the Industrial Revolution had changed the safeguards that existed in society for the elderly; before security had come from “the interdependence of members of families upon each other and of the families within a small community upon each other.” The CES concluded that a new system of economic security was necessary.

The Social Security Act was signed into law on August 14, 1935.  The Act provided a social insurance program for retired workers over the age of 65.  However, the Act did much more.  It provided unemployment insurance, aid to dependent children, and grants to states to assist with medical care.

Assistance to the elderly was provided through payroll taxes.  The amount of payroll taxes that an individual contributed during their lifetime determined the amount of Social Security funds they would receive on a monthly basis after they retired at age 65.  This basic system still exists to this day.

Numerous amendments the Social Security Act have been made in the meantime.  For example, many adjustments have been passed into law to account for cost of living increases, and eventually these increases would become automatic.  In 1954, a disability benefit was added to the Act.  Since 1960, this benefit has provided Social Security benefits to disabled workers of any age and their children.  In 1961, Lyndon Johnson signed an amendment that created Medicare, a medical insurance program for the elderly.

In the 1980s and 1990s, legislators clamored for fundamental changes to the Social Security system.  As a result, in 1994 President Bill Clinton signed a law that made the Social Security Administration an independent agency, rather than operating under the Department of Health and Human Services.

More recently, many policymakers—generally members of the Republican Party who want to limit the role of the federal government—have argued that Social Security should be privatized.  Others, such as current presidential candidate Mitt Romney, have argued that the retirement age should be increased.  President Barack Obama, who argues that privatization in particular will subject Social Security to the fluctuations of financial markets, has opposed these suggestions.

Social Security remains a large portion of government spending.  With 50 million beneficiaries (approximately 1 in 7 Americans) in 2008, the core program cost $615,344,000,000.  Other programs under the umbrella of Social Security cost an additional $43,040,000,000.  These costs are only expected to increase.  While many disagree about how to “fix” or “save” Social Security for future generations, most agree that it has become an essential part of the federal government’s role to provide economic security for its citizens.