ABSTRACT
As we saw in the previous chapter the operation of a pay-as-you-go pension system creates a new and important form of household wealth. By adding an entirely new dimension to individual economic welfare, social security has altered behavior in a number of important ways. People retire earlier than they otherwise would. Earlier retirement may strengthen incentives to save for a longer retirement period. On the other hand, the very operation of a pay-as-you-go pension system creates promises of pension benefits that might lessen the need to save for retirement and hence may replace household saving that otherwise would have occurred.
