Retirement Preparedness Saves Everyone Money

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We here at NPPC love pensions because they provide working families with a reliable and secure source of income in retirement. By contributing to their pension with a portion of every paycheck, public employees are earning deferred compensation that will provide them with a secure retirement. Many, but not all, public employees also participate in Social Security. Their Social Security benefit and their pension benefit, combined with any personal savings, gives them the foundation for a dignified retirement. This is obviously a good thing for the individual employee who earns this benefit. It is also, however, good for everyone else.

According to a study commissioned by AARP, increasing the retirement savings of working families by just 10 percent can dramatically reduce dependence on government programs for low-income retirees. As we’ve discussed before, roughly half of working Americans do not have access to a retirement plan through their employer. This means that, aside from Social Security, these workers are probably saving very little for retirement. Among low-income workers, the retirement savings rate is even worse. When workers retire with very little savings, it makes them more likely to rely on government programs to meet their needs. The AARP study focused on workers in Utah and it found that nearly a fifth will retire with more debt than savings. The study also found that “total government outlays for new retirees [in Utah] will top $3.7 billion over the next 15 years.”

These government programs exist for precisely this reason: to provide assistance to those in need. However, it’s important to note that people rely on these programs, in part, because they don’t have adequate retirement savings. If retirement savings were increased, then there would be less reliance on these government programs. This brings us back to public pensions. Defined benefit pensions are the best way to provide working families with a dignified and secure retirement. When retired workers know they can count on their monthly pension benefit, they don’t have to worry about relying on SNAP (food assistance) or other government programs to buy the basics, like groceries. The decline of pensions in the private sector has demonstrably decreased retirement security and has exacerbated wealth inequality in retirement.

The bottom line is this: pensions keep people out of poverty in retirement. Eliminating pensions increases the likelihood of falling into poverty in retirement, which increases reliance on government programs to meet basic needs, which increases costs for all taxpayers. Public pensions are a cost-effective way to provide working families with a dignified retirement – a retirement that does not include dependence on government programs.