Why Pensions Are Important
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:
|Annual minimum-wage salary:
|Average portion of pay Social Security replaces:
Most retirees have little in personal savings
|Median total savings of older households:
|Median income from savings of older Americans:
|MEDIAN INCOME OF OLDER AMERICANS:
Retirees with pensions have greater income security.
|Median pension income for people age 65 and older:
|Percentage of older Americans with a pension:
Pensions are important to the economy
|Pensions are the world’s largest source of capital:
|The cost of pensions in tax subsidies:
How Much is Saved in 401(k)s
Retirement Plan Contribution and Benefit Limits
+ Table 1: Pensions are Important to Retirement Security
- The average monthly Social Security benefit paid to retired workers in 2023 is $1,830.66, or $21,967.92 a year. The average monthly Social Security benefit paid to nondisabled widows & widowers is $1,710.46, or $20,525.52 per year. The average monthly Social Security benefit paid to disabled workers is $1,483.17, or $17,798.04 per year. (U.S. Social Security Administration, Office of Policy, “Monthly Statistical Snapshot, February 2023,” 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 Information: 2019 SCF Chartbook, Median value of financial assets for families with holdings, age 65-74.
- In 2021, half of Americans age 65 and over who had income from financial assets received less than $1,814 a year in income from those assets. 31 percent of Americans age 65 and over received no income at all from financial assets.(2022 Current Population Survey, PINC-08.)
- In 2021, half of all Americans age 65 and older received less than $27,382 in income from all sources.The median annual income for men 65 and older was $36,680; for women 65 and older, it was $22,002.The median yearly income for older households was $47,620. (Current Population Survey, March 2022)The median income of the four-fifths of people age 65 and older who are fully retired was $22,056.(Annual Social and Economic Supplement to Current Population Survey, March 2022.)
- March 2022 Current Population Survey, PINC-08
+ 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 $10,606. (2022 Current Population Survey, PINC-08.)
+ Table 4: Pensions are important for the economy
- This figure includes $11.4 trillion in private pension assets, $9.9 trillion in state and local government pension assets, and $4.5 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), December 9, 2022.)
- The federal tax expenditure for pensions in 2023 is estimated to be $331.7 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 ($108.0B) and defined contribution plans ($223.7B). It does not include Individual Retirement Accounts and Keogh Plans, which are estimated to cost an additional $38.9 billion in foregone revenue. The total retirement plan tax expenditure is estimated at a total of $370.6 billion for 2023.
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 $190.4 billion. The subsidy for mortgage interest deductions is expected to be $29.2 billion in 2023.
(Joint Committee on Taxation, U.S. Congress, Estimates of Federal Tax Expenditures for Fiscal Years 2022-2026, Table 1 – “Tax Expenditure Estimates by Budget Function, Fiscal Years 2022-2026,” p. 34 (p. 36 of the PDF), December 22, 2022.)