Information Center

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:

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:
$25.8 Trillion
The cost of pensions in tax subsidies:
$332 Billion

See also:

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 $1,841.27, or $22,095 a year. The average monthly Social Security benefit paid to nondisabled widows & widowers is $1,716.41, or $20,596.92 per year. The average monthly Social Security benefit paid to disabled workers is $1,486.89, or $17,842.68 per year. (U.S. Social Security Administration, Office of Policy, “Monthly Statistical Snapshot, September 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 35.0 percent, of the amount that someone retiring at normal retirement age in 2023 (age 66) was earning before retirement. (Social Security Administration, Replacement Rates for Hypothetical Retired Workers, Table C, Page 8, March 2023)

+ Table 2: Most Retirees have little in personal savings

+ 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 2022, the median pension income for people age 65 and older was $15,730. (2023 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.)

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