Research Quantifies the Broad Economic Impact of Pension Payments

More than $680 billion in pension benefits were paid to 26.3 million beneficiaries in 2022, according to new research from the National Institute on Retirement Security’s “Pensionomics 2025” report, which quantified the economic impact of defined benefit pension expenditures.

“Virtually every state and local economy across the country benefits from the spending of pension checks,” wrote the report’s authors, NRIS Executive Director Dan Doonan and Ilana Boivie, an assistant director of strategic resources for the International Association of Machinists and Aerospace Workers. “For example, when a retired nurse residing in the state of Wisconsin receives a pension benefit payment, s/he spends the pension check on goods and services in the local community. S/he purchases food, clothing, and medicine at local stores, and may even make larger purchases like a car or laptop computer. These purchases, combined with those of other retirees with pensions, create a steady economic ripple effect.”

The research found that of the $680.2 billion paid out to 26.3 million retirees, approximately $371.6 billion was paid out to 12 million retired state and local government employees and their beneficiaries. $91.5 billion was paid out to 2.7 million federal government beneficiaries. Approximately $217.4 billion was paid out to 11.5 million private sector retirees and their beneficiaries, which breaks down as $51.8 billion paid out to 4.1 million beneficiaries of multi-employer defined benefit plans and $165.6 billion paid out to 7.4 million beneficiaries of single-employer plans.

The paper noted that retirees with a defined benefit pension can rely on a steady income stream from their pension and steadily spend despite fluctuations in the market. On the other hand, retirees with a defined contribution retirement plan may be reluctant to spend from these accounts in a market downturn. Because of this, the NIRS noted that DB pensions and their contributions to the economy can be a stabilizing factor, similar to Social Security.

According to NIRS, every $1 paid out in defined benefit retirement income generated an output of $2.28 to the national economy.

“This multiplier incorporates the direct, indirect, and induced impacts of retiree spending, as it ripples through the U.S. economy,” the paper stated.

The paper stated that defined benefit retirement expenditures supported 7.1 million jobs in the U.S., which paid $466.2 billion in labor income, added $871 billion to gross domestic product, generated $224.3 billion in federal, state and local tax revenue, and produced $1.5 trillion in total economic output across the country.