When we think of economic impact across the U.S., certain industries often come to mind — finance, technology, healthcare, and manufacturing. But one important driver of the U.S. economy that gets scant attention is spending of pension income by retirees.
Pensions often are viewed only through the narrow lens of retirement, as reliable monthly income for many U.S. retirees. For context, some 26 million retirees working in both the private and public sectors across the nation in 2022 received more than $680 billion in pension benefits.
But pension income is so much more than just income for retirees — it’s also a reliable economic engine that impacts virtually every community across the U.S. When pension income lands in a retiree’s bank account, that money doesn’t just sit in an account. That income is spent on day-to-day living expenses. Retirees use their pension income on essentials like groceries, housing, medicine, utilities, clothing, transportation, and entertainment. And this spending has sizable economic footprint across the U.S, not only generating income for businesses and workers, but also generating tax revenue.
Pensions Fueled $1.5 Trillion In Economic Output
Let’s take a look at the economic impact of pensions in 2022, the most recent year for which data is available. A detailed economic analysis finds that retiree spending powered by U.S. private and public sector defined benefit pensions was substantial – whopping $1.5 trillion in total economic output, supporting 7.1 million jobs across the nation across various sectors.
To give context, the economic impact of pension spending is comparable to the entire U.S. agriculture and food sector. In 2023, this sector contributed approximately $1.537 trillion to the U.S. gross domestic product, accounting for about 5.5% of the nation’s GDP, according to U.S. Department of Agriculture’s Economic Research Service.
Jobs tied to pension spending collectively paid $466.2 billion in wages, illustrating the critical role of pensions on the U.S. labor market. Nationally, the largest employment impacts of pensions were seen in the food service, health care, and retail trade sectors. When looking at the employment impacts by occupation, retail service workers showed the largest gains, with 370,468 total jobs that paid $12.8 billion in compensation to U.S. workers.
Pension Spending Also Fills Public Coffers
In addition to the impact on employment and economic activity, pension spending bolstered public finances in 2022 in the form of tax revenue. This tax revenue comes from two major sources: taxes paid by beneficiaries directly on their pension benefits and taxes from spending made in the local economy (such as sales taxes resulting from a retail purchase.)
The Pensionomics 2022 analysis finds an estimated $224.3 billion in total tax revenue was attributable to public and private pension benefits in 2022, including $125.5 billion in federal tax revenue and $98.8 billion in state and local tax revenue.
These revenues are important because they help fund essential public services, from education to infrastructure, ensuring pensions’ benefits extend beyond retirees to society as a whole. For perspective, the tax revenue supported by pensions nearly matched the federal government’s total spending on transportation for the year.
Pensions are an economic gift that keeps on giving. The $12 trillion amassed and invested by pension funds consistently provides this economic support year after year. And because pensions are pre-funded, nearly 60% of the benefits in public plans are supported by investment returns, with the remaining dollars coming from contributions.
As policymakers continue to examine the nation’s retirement infrastructure, broadening the lens to consider the substantial economic footprint of pensions is a key consideration. Retirees who receive pension income know that they will receive a stable retirement income every month as long as they live, and they can plan their spending and household budget accordingly. Ultimately, that spending has important economic benefits that are far reaching not just for retirees, but also for industries, local businesses, jobs across America. Pensions are so more than retiree income, they’re critically important economic engines.
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