Rhee: Pensionomics 2014

From the Executive Summary:

Defined benefit (DB) pension benefits not only provide a secure source of income for many retired Americans, they also contribute substantially to local, state, and national economies. DB pensions play a vital role in sustaining consumer demand that ultimately supports millions of jobs. Virtually every state and local economy across the country
benefits from the spending of pension checks. 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. In short, pension spending supports the economy and supports jobs where retirees reside and spend their benefits. Pension expenditures may be especially vital to small or rural communities, where other steady sources of income may not be readily found if the local economy lacks diversity.

Additionally, reliable pension income can be especially important not only in providing retirees with peace of mind, but in stabilizing local economies during economic downturns. Retirees with DB pensions know they are receiving a steady check despite economic conditions. In contrast, retirees may be reluctant to spend out of their 401(k)-type accounts if their savings are negatively impacted by market downturns. To the extent that DB pensions provide retirees with steady income available for spending regardless of fluctuations in the stock market, DB pensions may play a stabilizing role in the economy like Social Security.


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