#United States #Washington #Economic Impact #Pensions #Retiree Spending

The Economic Influence of Retiree Spending

In 2022, retiree spending stemming from both private and public sector defined benefit pensions played a vital role in the U.S. economy, according to a comprehensive report released by the National Institute on Retirement Security (NIRS). This substantial influence was evident as retirees contributed a remarkable $1.5 trillion in total economic output, simultaneously supporting 7.1 million jobs across the nation.

The report, titled Pensionomics 2025, delves into the economic ramifications of U.S. pension plans, demonstrating the extensive impact of both state and local plans on a state-by-state basis. Moreover, the findings reveal that pension expenditures not only promote employment and economic activity but also bolster public finances, generating $224.3 billion in tax revenue across federal, state, and local levels.

Key sectors experiencing the most significant benefits from this pension income include food services, healthcare, and retail. These areas exemplify how pension spending is critical to fostering economic security and growth across diverse communities. Dan Doonan, the executive director of NIRS and a co-author of the report, emphasized that the importance of pensions extends beyond providing financial security for retirees. He stated,

"Pensions do not merely secure the financial futures of retirees; the economic footprint stemming from retirees' pension spending profoundly impacts communities nationwide. Retirees tend to be confident in spending their pension incomes on essential needs, such as housing, food, and healthcare, propelling local economies and creating jobs.”

Additionally, Doonan pointed out that pension income serves as a reliable source of tax revenue, produced from taxes retirees pay on their pension benefits, as well as the sales taxes generated through their spending. This revenue is particularly critical to the financial health of local communities.

Magnitude of Pension Expenditures in 2022

In 2022, the report highlights significant figures surrounding pension benefits:

• - $680.6 billion in pension benefits were disbursed to 26.3 million retired Americans, which included:

- $371.6 billion designated for 12 million state and local government retirees and their beneficiaries (generally spouses).
- $217.4 billion for approximately 11.5 million private sector retirees.
- $91.5 billion provided to around 2.7 million federal government beneficiaries.

The expenditures resulting from these benefits significantly supported the following metrics:

• - 7.1 million American jobs, yielding $466.2 billion in labor income.
• - $1.5 trillion in overall economic output across the nation.
• - $871 billion in added value, contributing directly to GDP.
• - $224.3 billion in tax revenues collected at federal, state, and local levels.

The Economic Multiplier Effect of Pension Spending

Further analysis revealed notable multiplier effects of pension expenditures:

• - For every dollar distributed in pension benefits, $2.28 was generated in total economic output nationally.
• - Each dollar contributed by taxpayers towards state and local pensions yielded an impressive $7.79 in total output. This highlights the extraordinary leverage gained from robust long-term investment returns and the shared funding responsibilities embraced by both employers and employees.

The most impactful economic ramifications of pension spending were observed in the food services, healthcare, and retail sectors, emphasizing how interstate spending can uplift entire economies.

The Pensionomics 2025 report encompasses an extensive analysis of the economic impact attributable to private and public sector pension payments across the U.S. This includes a thorough examination of public pensions' effect within all 50 states and the District of Columbia. Utilizing the IMPLAN modeling approach, the report estimates job creation, output, value addition, and tax implications stemming from pension benefit distributions at both national and state levels.

The National Institute on Retirement Security, based in Washington, D.C., is a non-profit and non-partisan entity dedicated to enlightening policymakers about the significance of retirement security for employees, employers, and the overall economy. For more information, interested individuals can visit NIRS Online.