How Reliant are Older Americans on State and Local Government Pensions?

32 Pages Posted: 20 Nov 2019

See all articles by Philip Armour

Philip Armour

Cornell University

Michael Hurd

RAND Corporation - Santa Monica CA Offices

Susann Rohwedder

RAND Corporation

Date Written: November 18, 2019

Abstract

State and local government pension plans cover about 19.5 million participants, and many participants are heavily reliant on these pensions for retirement income. Most of these plans, however, are underfunded. Based on data from the Health and Retirement Study, we examined the lifetime work histories of those observed at ages 67 to 72 in 2004, 2008, or 2014. Seventy-seven percent of single persons and 61 percent of couple households had never worked for state or local (S&L) government. Among those single and couple households who did work for S&L government, we found that they have on average more years of education and more economic resources. Among currently retired and near-retirement households, we compared economic preparation for retirement according to their lifetime employment in the S&L sector, and we examined how economic preparation would be affected if pension benefits were cut. Based on stochastic simulations, which account for uncertainty about length of life and out-of-pocket medical expenditures, we found that economic preparation for retirement among those with S&L government work histories would only be modestly reduced if their pension income were cut. Under a 50 percent cut to all pension income of households with any S&L sector work, only an additional three to four percent of these households would no longer be prepared for retirement. The change is modest because households with S&L employment have better preparation than other households; some of the cuts are paid for by reduced taxes; and the affected households will bequeath less.

Keywords: Government pensions, economic preparation for retirement

Suggested Citation

Armour, Philip and Hurd, Michael and Rohwedder, Susann, How Reliant are Older Americans on State and Local Government Pensions? (November 18, 2019). Michigan Retirement Research Center Research Paper No. 2019-399. Available at SSRN: https://ssrn.com/abstract=3489348 or http://dx.doi.org/10.2139/ssrn.3489348

Philip Armour

Cornell University ( email )

No Address Available

Michael Hurd (Contact Author)

RAND Corporation - Santa Monica CA Offices ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Susann Rohwedder

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

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