Defined benefit pensions make a big contribution to the U.S. economy, the National Institute on Retirement Security reported Wednesday.
In 2014, retiree spending of pension benefits generated $1.2 trillion in total economic output, supporting 7.1 million jobs across the U.S.
American retirees paid $190 billion in federal, state and local taxes on their pension benefits and spending in 2014.
The report showed pension spending supports the economy and jobs where retirees reside and spend their benefits.
Take housing—In 2014, housing spending by retired workers with pensions supported some 383,000 real estate industry jobs nationwide.
Healthcare, food services and retail industries also experience big employment benefits from retiree spending.
“Household spending drives the U.S. economy, accounting for more than two-thirds of U.S. economic output,” NIRS Executive Director Diane Oakley said in a statement. “In fact, American retirees’ pension spending supported one-tenth of such economic output nationwide.
“So it’s clear that the growing number of retired Americans must have adequate income for consumer spending that continues to drive our economy.”
The report includes an interactive map showing the economic effects of state and local plans on a state-by-state basis.
The NIRS report noted economists are predicting a dramatic slowdown in economic growth in coming decades. Citing a recent McKinsey Global Institute study, it said such factors as an aging workforce and drops in population growth could reduce economic growth in the U.S. by one-third, and 40% globally.
“A stable and secure pension benefit that won’t run out enables retirees to pay for their basic needs like housing, food, medicine and clothing,” Oakley said. “It’s good for the economy when retirees are self-sufficient and regularly spend their pension income.”
In contrast, retirees with inadequate 401(k) savings and those fearful of running out of savings tend to hold back on spending, stunting economic growth, she said. The NIRS study was conducted using the most current data available from the U.S. Census Bureau and IMPLAN, input-output modeling software widely used by industry and governments analysts.
According to the study, nearly $519.7 billion in pension benefits was paid to 24.3 million American retirees and their beneficiaries, typically surviving spouses, in 2014.
This included $253 billion paid to 9.6 million retired state and local government employees, $78.8 billion to 2.6 million federal government retirees and $187.9 billion to 12.1 million private sector retirees.
Expenditures from these payments collectively supported the following:
• 7.1 million American jobs that paid $354.8 billion in labor income.
• $1.2 trillion in total economic output nationwide.
• $627.4 billion in value added (GDP).
• $189.7 billion in federal, state and local tax revenue.
Pension expenditures have large multiplier effects, the report said. Each dollar paid out in pension benefits in 2014 supported $2.21 in total economic output nationally.
In addition, each taxpayer dollar contributed to state and local pensions supported $9.19 in total output nationally. This represents the financial value of long-term investment returns and the shared funding responsibility by employers and employees.
On Tuesday, the U.S. Census Bureau reported real median household income increased by 5.2% between 2014 and 2015 and the official poverty rate fell 1.2 percentage points. The percentage of people without health insurance coverage also decreased.
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