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Pension May Boost U.S. Economy More Than 401(K)— Find Out Why!

Pension and Retirement Plans
Pension and Retirement Plans

Pension may seem outdated but they may actually boost the U.S. economy more than the 401(K) plans. In this article, read and find out how pensions may provide a more reliable return to the U.S. economy!

Pension Payments [Photo: Moneycontrol]

Pension Payments [Photo: Moneycontrol]

In 2020, the National Institute on Retirement Security stated that the pension payments helped in supporting 6.8 million jobs. They also provided $422.2 billion in labor income and $62.9 billion in federal tax revenue. All in all, the pension payments provided $1.3 trillion in the U.S. economy despite the first year of the COVID-19 pandemic. The data mentioned emphasized how pension payments may provide a more reliable return to the U.S. economy than 401(K) despite the latter being the leading retirement plan offered, as reported by Vincent.

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Multiplier Effect

According to Vincent, senior economist of the International Association of Machinists and Aerospace Workers Ilana Boivie stated that pension payments can manage a local economy using the “multiplier effect”. Every dollar paid in pension amounts to $2.13 produced in a local economy. For example, if a retired firefighter uses his pension to purchase a new lawn mower, the local store owner would see an increase in sales. If multiple retired firefighters purchase lawn mowers, then the owner may need to hire someone for assistance. The owner and the new staff then spend money in the economy. The recycles through the economy because of the pension from the retiree.

Job Impact

In 2020, pension payments supported several jobs even if the industries changed because of the environment during the COVID-19 pandemic. For example, pension payments supported 662,188 jobs in community care facilities, physician’s offices, and hospitals. Pension payments also supported 678,678 jobs in the office and administrative support. Employees of that field received $42.25 billion in wages and bonuses. In addition, pension payments supported 547,819 workers in restaurants with limited service and 227,553 workers in restaurants with full service.

Future Recessions

According to Vincent, in 401(K) plans, employers and employees contribute funds. Retirees do not have a fixed retirement amount. This is because the amount depends on how much they contribute during retirement and the balance on their accounts after withdrawal. Unfortunately, this changes based on the performance in the stock market.

On the other hand, pension payments are provided only by the employer. Retirees have a fixed amount every month. Unlike in 401(K) plans, all the money go into retirement with pension payments. This means that retirees can go through changing economic conditions, even a recession, better than those who depend on 401(K) plans.

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