Question

How the pay as you go social security system increase or may not increase the social welfare and how the fully funded social security system increase or  may not increase the social welfare

Answer 1

Pay as you go means the pensioners are directly paid by the pay sponsor.If a person gets $500 this month it means the sponsor pays $500.Fully funded means the sponsor starts putting money aside much before the retirement of Jim and then Jim gets paid once he retires.Public plans are pay as you go because money is not set aside by the government much before time.The money that the person pays into social  security at present is utilised to pay current retirees. Personal savings are fully funded.A person gets pension based on his earnings as well as his service. A person doesnt know the amount of his pension until he finally retires.The retirement benefit amount is not guaranteed.It is not certain whether individual and social welfare can be improved by replacing the pay as you go system by the fully funded system in which pensioner gets periodic income payments but the retirement benefit amount is not guaranteed. So social welfare is not increased .Pay as you go gives a minimum retirement income guarantee and improves the social welfare.Thus pay as you go will be welfare improving through a minimum retirement income guarantee .