One fact about pensions that critics conveniently ignore is that pension benefits are spent and that money goes back into local economies. This is a very important point, so it’s worth elaborating on. Public pension funds receive revenue from three sources: employee contributions, employer contributions, and investment earnings. The employer contribution — paid by school districts, fire departments, state government agencies, etc. — is the only source of taxpayer dollars that goes into a public pension fund. On average, taxpayers contribute less than a quarter of every dollar in benefits paid out from a public pension fund. The majority of revenue in a public pension fund comes from investment earnings.
When the money in a public pension fund is eventually paid out to retirees and other beneficiaries, they don’t just save that money or keep it stashed away somewhere. They spend it on food, medicine, housing, and other daily expenses. Many retirees live on a fixed income. They depend on their pension benefit to cover their daily needs. When retirees spend their pension benefit, where does that money go? Into their local economy. When pensioners spend their benefit, they are buying groceries at the local grocery store, purchasing their prescription drugs at the local pharmacy, paying their mortgage on their home (which supports the local real estate market). This money stays in place and can provide a strong counter cyclical effect when the economy takes a downturn because pension benefits will continue to be paid and pensioners can help buoy local economies during rough times.
The National Institute on Retirement Security (NIRS) has run the numbers in their Pensionomics report. Using numbers from 2014 (the latest available figures), NIRS found that nearly $519.7 billion in pension benefits were paid to 24.3 million retired Americans in that year alone. This produced $1.2 trillion in total economic output nationwide, which supported 7.1 million jobs.