DB Income Reduces Poverty Risk in Older Americans

Income from defined benefit (DB) pension plans significantly contributes to the well-being of older Americans.

According to a report from the National Institute on Retirement Security (NIRS), rates of poverty among older households (ages 60-plus) lacking defined benefit (DB) pension income were approximately nine times greater than the rates among older households with DB pension income in 2010, six times greater than in 2006.

Older households with lifetime pension income are far less likely to experience food, shelter and health care hardship, and are less reliant on public assistance, according to the report titled “The Pension Factor 2012: Assessing the Role of Defined Benefit Plans in Reducing Elder Economic Hardships.” The data also indicated that pensions are a factor in preventing middle-class Americans from slipping into poverty during retirement.

“[Pension income keeps] middle-class families in the middle class when they retire,” said Diane Oakley, executive director at NIRS and co-author of the report, during a webinar about the data. 

In addition, older households with DB income generally fared better during the recent economic turmoil than households without it. “The power of the DB plan actually became even stronger in the financial crisis,” Oakley said.

The report estimates that in 2010, DB pension receipt among older American households was associated with:

  •  4.7 million fewer poor and near-poor households;
  •  460,000 fewer households that experienced a food insecurity hardship;
  •  500,000 fewer households that experienced a shelter hardship;
  •  510,000 fewer households that experienced a health care hardship; and
  •  1.22 million fewer households receiving means-tested public assistance.  



The study also found that gender and race gaps in poverty shrunk among those with pensions. Only 2% of females with pension income were considered poor, compared with 18.4% without pensions. This was compared with 1.3% of men with pensions who were considered poor and 11.7% without pensions.

In regard to race gaps, 1.5% of white older Americans with pension income were classified as poor, and 12.4% were considered poor without them. The older black population saw 2.9% classified as poor with pensions, compared with 26.9% considered poor without them. The Hispanic population also had a large gap in poverty levels between those with pensions (2.2%) and those without (25.4%).

“The analysis indicates pensions exert an independent, positive impact on older Americans’ well-being—an effect we call the ‘pension factor,’” said Frank Porell, professor of gerontology at University of Massachusetts Boston and co-author of the report. “This ‘pension factor’ is particularly strong for more vulnerable subpopulations of elder households. In fact, gender and racial disparities in poverty rates, material hardships and public assistance rates are greatly diminished, and in some cases nearly disappear, among households receiving pension income.”

The report was conducted using the U.S. Census Bureau’s Survey of Income Program Participation (SIPP) panels. The study sample included SIPP respondents ages 60 or older and all households with a head of household ages 60 and older.

Additional analysis from the survey is available at www.nirsonline.org.