Information Center

Why Pensions Are Important

11/28/22

This fact sheet explains the role pensions play in the overall retirement security of American workers, retirees, and their families.

Pensions are Important to Retirement Security

Social Security provides only a safety net.
Average yearly Social Security payment:
$18,605
Annual minimum-wage salary:
$15,080
Average portion of pay Social Security replaces:
34.4%

Most retirees have little in personal savings

Median total savings of older households:
$54,300
Median income from savings of older Americans:
$1,609
MEDIAN INCOME OF OLDER AMERICANS:
$27,398

Retirees with pensions have greater income security.

Median pension income for people age 65 and older:
$14,271
Percentage of older Americans with a pension:
30%

Pensions are important to the economy

Pensions are the world’s largest source of capital:
$25.6 Trillion
The cost of pensions in tax subsidies:
$290 Billion

See also:

How Much is Saved in 401(k)s

Retirement Plan Contribution and Benefit Limits


Sources

+ Table 1: Pensions are Important to Retirement Security

  • The average monthly Social Security benefit paid to retired workers in 2022 is $1,676.53, or $20,118.36 a year. The average monthly Social Security benefit paid to nondisabled widows & widowers is $1,566.44, or $18,797.28 per year. The average monthly Social Security benefit paid to disabled workers is $1,364.41, or $16,372.92 per year. (U.S. Social Security Administration, Office of Policy, “Monthly Statistical Snapshot, October 2022,” Table 2.)
  • The federal minimum wage is $7.25 per hour. Assuming that there are 2080 work hours in a year (40 hours per week x 52 weeks per year), a worker making the federal minimum-wage would earn $15,080 in one year. (U.S. Department of Labor, Employment Standards Administration, Wage and Hour Division, “Compliance Assistance — Fair Labor Standards Act (FLSA).”) Some states and local jurisdictions have their own minimum wage laws, which pay more. For example, the minimum wage in California is $13-14 per hour, or $27,040-$29,120 a year. In the District of Columbia, it is currently $15 per hour, or $31,200 a year.
  • Social Security replaces 34.4 percent, of the amount that someone retiring at normal retirement age in 2022 (age 66) was earning before retirement. (Social Security Administration, Replacement Rates for Hypothetical Retired Workers, Table C, Page 8, June 2022)

+ Table 2: Most Retirees have little in personal savings

  • Federal Reserve Board. “Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances.” September 2020, Table 3. Additional Information2019 SCF Chartbook, Median value of financial assets for families with holdings, age 65-74.
  • In 2019, half of Americans age 65 and over who had income from financial assets received less than $1,609 a year in income from those assets. 34 percent of Americans age 65 and over received no income at all from financial assets.(2021 Current Population Survey, PINC-08.) According to the Social Security Administration’s Income of the Population 55 or Older, 2014, the median income from assets for “aged units” is $361 (Table 7.A3, “Percentage distribution of recipient units, by Social Security beneficiary status, marital status, and age, 2014”). An “aged unit” is defined as either a married couple living together in which at least one of the two is 65 or older or a nonmarried person 65 or older.
  • In 2019, half of all Americans age 65 and older received less than $27,398 in income from all sources.The median annual income for men 65 and older was $36,921; for women 65 and older, it was $21,815.The median yearly income for older households was $47,357. (Current Population Survey, March 2020)The median income of the four-fifths of people age 65 and older who are fully retired was $22,005.(Annual Social and Economic Supplement to Current Population Survey, March 2020.)
  • March 2020 Current Population Survey, PINC-08Note: Median income of “aged units” with only Social Security is $15,871. Median income of “aged units” with Social Security and a private pension is $36,270. Median income of “aged units” with both Social Security and a federal government pension is $38,806. Median income of “aged units” with both Social Security and some other type of pension (state or local government, military) is $37,789.An “aged unit” is defined as either a married couple living together in which at least one of the two is 65 or older or a nonmarried person 65 or older.(Social Security Administration. “Number and median income of those receiving retirement benefits, by marital status and receipt of earnings and income from assets, 2014.” “Income of the Population 55 or Older, 2014,” April 2016, Table 3.A5)

+ Table 3: Retirees with pensions have greater income security

  • Median pension income for people age 65 and older: This figure includes public and private pensions, but does not include IRAs or Keoghs. In 2021, the median pension income for people age 65 and older was $14,271. (2021 Current Population Survey, PINC-08.)

+ Table 4: Pensions are important for the economy

  • This figure includes $11.8 trillion in private pension assets, $9.5 trillion in state and local government pension assets, and $4.3 trillion in federal government pension assets.(Federal Reserve Board of Governors, Flow of Fund Accounts of the United States, Tables L.117-120, pp. 94-100 (pp. 110-116 of the PDF), March 11, 2021.)
  • The federal tax expenditure for pensions in 2021 is estimated to be $290 billion. This figure includes the revenue lost to the U.S. Treasury from employer contributions to both public and private pension plans. This is a combined total from defined benefit plans ($115.7B) and defined contribution plans ($174.3B). It does not include Individual Retirement Accounts and Keogh Plans, which are estimated to cost an additional $38.7 billion in foregone revenue. The total retirement plan tax expenditure is estimated at a total of $328.7 billion for 2021.

All taxpayers effectively pay for the tax subsidy to encourage retirement savings through higher taxes or fewer government services. The tax expenditure for deductions for health insurance premiums is $179.2 billion. The subsidy for mortgage interest deductions is expected to be $23.7 billion in 2021.

(Joint Committee on Taxation, U.S. Congress, Estimates of Federal Tax Expenditures for Fiscal Years 2020-2024, Table 1 – “Tax Expenditure Estimates by Budget Function, Fiscal Years 2020-2024,” p. 34 (p. 36 of the PDF), November 5, 2020.)

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