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5 Ways Seniors Got By Before Social Security

By Maurie Backman – Apr 2, 2018 at 6:08AM

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Social Security didn't always exist. Here's how seniors managed without it.

Social Security serves as a critical source of income for millions of retired seniors today. But the program didn't exist before 1935, which means that back in the day, Americans had to get more proactive about securing an income stream for their old age. Here are just some of the financial resources they tapped instead, courtesy of GOBankingRates.

1. Company pensions

Though pensions are more of a rarity these days, there was a point in time when a large number of workers had access to them, and that's how many seniors got by before Social Security came to be. The Alfred Dolge Company was the first to create an employee pension in 1882, and following that, many companies followed suit.

Social Security card

IMAGE SOURCE: GETTY IMAGES.

2. Savings accounts

Banks existed well before Social Security, which meant that seniors who were smart about saving their wages could store their excess cash at their local institutions and let it earn interest to boot. But while savings accounts are considered extremely safe investments today, this wasn't always the case. That's because FDIC insurance didn't exist until 1933, which meant you actually risked losing principal back then.

3. Cash

You've heard of those folks who keep their savings in cash stashed under the mattress, right? Believe it or not, that's what seniors did back in the day to ensure that they'd have the money to pay their bills once they couldn't work. Remember, banks weren't considered a secure investment until FDIC insurance came to be, and so while the idea of storing one's savings in a shoebox under the bed might seem laughable today, back then, it made sense.

4. Annuities

An annuity is a contract between an individual and an insurance company, and from the 1890s through the 1920s, it was a popular savings option for the guaranteed income it could produce. These days, annuities are still a viable investment, and they're a good choice for some workers. They are, however, a bit complicated, as they come in different forms, so anyone interested really needs to read up on how they work.

5. Help from family

You hear a lot today about how children turn into caregivers and help support their aging parents later in life. Well, that's not a new practice. Back in the day, adult children helped support their senior parents financially, thus enabling them to get by without Social Security. Extended families also tended to offer financial assistance when possible.

Now at this point you may be thinking: "Well, that's a nice little history lesson, but why is any of this significant? After all, Social Security is alive and well today."

And that's clearly true. But one thing you may not realize about Social Security is that its buying power is extremely limited. For one thing, the program has been doing a poor job over the years of keeping up with inflation. Furthermore, Social Security is facing considerable cuts over the next two decades as its trust funds dwindle down. It's estimated that the program might need to cut benefits as early as 2034 if Congress doesn't jump in with a fix.

But fiscal problems aside, Social Security just plain wasn't designed to sustain retirees on its own. Those monthly benefits, in a good-case scenario, will replace about 40% of the typical worker's pre-retirement income today, when most seniors need twice that amount to live modestly yet comfortably.

Older man reading a newspaper

IMAGE SOURCE: GETTY IMAGES.

That's why it doesn't hurt to take a lesson from the seniors of yesteryear who relied heavily on their own savings (whether in the form of bank accounts, physical money hidden away, or annuities) to get by. Sure, some folks were fortunate enough to have pensions, but as of 1932, only 15% of the U.S. workforce fell into this boat. And yes, some seniors got help from family, but that was never a given.

The point here is that retirement is something you should take control of by saving during your working years. Currently, you can contribute up to $5,500 a year to an IRA if you're under 50, and $6,500 a year if you're 50 or older. Employer-sponsored 401(k)s offer an even greater opportunity to save, with current annual contribution limits of $18,500 for workers under 50, and $24,500 for the 50-and-over set.

Even if you can't max out any of these limits, saving a small amount over time and investing it wisely will go a long way. Case in point: Setting aside just $300 a month over 35 years will leave you with a $498,000 nest egg, assuming your investments generate an average annual 7% return, which a stock-focused portfolio can easily produce. And that, combined with Social Security, could make for a nice retirement.

Remember, there's no need to write off Social Security, as those benefits will still be around in some shape or form for the foreseeable future. Just take a lesson from those who didn't have access to this crucial program and be proactive about securing your retirement as well.

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