Social security and uncertain lifetime

This paper analyses social security in a model with uncertain lifetime. Finance of social security is modelled in a generalised way. It includes a pay-as-you-go, a fully funded, and an optimal system as special cases. The following results are obtained: Benefits reduce savings, bequests, capital accumulation, income and utility Funding increases utility in the long run, while it depresses welfare in the short run. An increase in life expectancy induces a higher social security tax. This leads to a reduction in savings, capital accumulation and welfare. This is reversed if individuals recognise higher life expectancy and therefore change time preferences.