Library of Congress

Where Retirement Benefits Came From

A brief history, from military pensions to Social Security.

Martin Luther King once said, “We are not makers of history, we are made by history.”

When I was in school, I had a hard time coming up with a good reason to study history. My history teacher was very theatrical and tried to bring the subject to life by changing the tone of his voice from a whisper to a shout, but his extraordinary effort was lost on me. I just thought he was a little kooky. But if we are indeed shaped by history, then studying it may help us understand how we got to where we are today and where we might be headed in the future.

The topic of retirement was what actually made me passionate about learning more about the past. To me, it’s a fascinating story.

The inability to work due to illness, disability and the frailty of old age is nothing new. Saving for retirement dates back to the ancient Greeks, who stockpiled precious oils that kept well over time. Gradually, our ancestors developed the idea of charity and responsibility of family members to take care of each other.

One of America’s founding fathers, Thomas Paine, backed one of the earliest forms of social insurance, proposing an inheritance tax, with the funds distributed to those aged 50 and older to guard against poverty in old age. This was in 1795, more than 100 years before our modern Social Security system was created.

Prior to civilian federal employees having a formal retirement benefit, retirement benefits were granted to veterans of military service. Civil War veterans and their survivors participated in a program of disability, survivors and old-age benefits similar in some ways to the later Social Security programs.

Military pensions became an important source of economic security. In 1893, such pensions accounted for 37 percent of the entire federal budget, totaling $165 million.

By 1910, more than 90 percent of living Civil War veterans were receiving benefits. (But the number of beneficiaries was less than 1 percent of the total U.S. population of that era.) I can remember hearing stories of surviving widows of Civil War veterans receiving pensions as late as 1999.

Private sector company pensions also pre-date the federal civil service retirement system. The first was created in 1882 by the Alfred Dolge Company, a builder of pianos and organs. Employees contributed a mandatory 1 percent of their pay and the company added 6 percent interest.

Other companies also began implementing pension programs. But as late as 1915, only 15 percent of the American workforce was covered by any kind of pension program. By 1932, only 5 percent of the elderly in the United States were receiving pension benefits.

For federal civilian employees, May 22, 1920, marked the creation of the Civil Service Retirement System by an act of Congress. In order to retire under the new system, you had to have a minimum of 15 years of service and be deemed disabled by a medical condition or have reached the mandatory retirement age of 70. Class A retirees—those who served in government for 30 years or more—were granted a pension based on their highest 10 years of average salary. They received 60 percent of their average salary as a pension benefit—with a minimum of $360 per year and a maximum of $720. Additional groups of beneficiaries extended to Class F, those with 15 years of service (but less than 18). They received 30 percent of their average pay, with a minimum of $180 a year and a maximum of $360.

For some perspective, you could buy a house in 1920 for about $1,200.  Most items in a grocery store were under 50 cents.

Just like today, retirement benefits were paid on the first of the month and employees had to complete a retirement application to receive their benefit. The employees’ retirement contribution at that time was 2.5 percent of basic pay. The Civil Service Retirement and Disability Fund was created to pay out benefits. It still exists today, and provides benefits to both CSRS retirees and those under the newer Federal Employees Retirement System.

In 1935, President Franklin Roosevelt signed the legislation creating the Social Security system. At that time, only primary workers received benefits. A 1939 change in the law added survivor benefits and benefits for retirees’ spouses and children. In 1956 disability benefits were added. A man named Ernest Ackerman got the first payment under the program in January 1937—for 17 cents. This was a one-time, lump-sum payout--which was the only form of benefits paid during the start-up period, from January 1937 through December 1939. A woman named Ida May Fuller was the first recipient of monthly Social Security benefits, in the amount of $22.54 per month. She had only paid into the system for three years, but she lived to age 100, and ended up collecting a total of nearly $23,000 in Social Security.

If you want to learn more about the history of retirement, Social Security provides a great online resource. There you will find not only a written history, but oral history accounts and photos and videos that vividly capture how the modern retirement system has evolved.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.