The Impact of Social Security on Personal Savings

There have been two contradictory arguments about the impact of social security on saving. Traditional savings theory indicates that private saving would decline as compulsory public saving increased. On the other hand, studies of private pensions indicate that the existence of pension benefits stimulates individuals to increase their saving. This study argues that social security benefits have indeed discouraged private saving, but any decline in saving has been offset by the changing retirement experience. A secondary effect of the social security program has been to encourage retirement at age sixty-five, thereby forcing individuals to save over a shorter working life for a longer retirement, which has led to an increase in aggregate saving.