Retirement Income Security - Is Full Funding the Answer?

An analogy is drawn between the funding of an individual pension plan and a paygo social security system. For both plans, the total expected value of benefts can exceed the total expected value of contributions. For the individual pre-funded plan this is true because of the discount factor, 8, representing investment income earnings. For the paygo social security system, the analogous 'discount' factor is denoted r, and is the total of real growth rates of the labour force and real productivity gains per worker, that is, real growth in wealth production. The paper then presents arguments to show that a fully-funded social security scheme is no more secure economically than a paygo scheme. Both schemes rely on the ability of the economy to create and transfer wealth. That is, for real retirement income security the funding mechanism is irrelevant.