BlackRock CEO shares problem-solving ideas

The CEO of the world’s largest investment management firm said in his annual letter to investors that he has some thoughts about fixing what’s wrong with America’s retirement system.

In his letter black stone (NYSE:BLK) CEO Larry Fink explained the challenges Americans, like his parents, face in ensuring a long and comfortable retirement. Times have changed as people live longer, pensions are largely a thing of the past, the future of Social Security is a political football, and the workforce is rapidly changing with the rise of the gig economy and independent contractors.

“(Retirement) is a much more difficult proposition than it was 30 years ago, and it will be an even more difficult proposition 30 years from now.” He added that as a society we need to do more to help people afford it. Those extra years.

The BlackRock CEO doesn’t have all the answers, but he does have some ideas on where to start.

national problem

If you don’t think your retirement is approaching crisis levels, consider these numbers: According to the U.S. Census Bureau, nearly half of Americans ages 55 to 65 report having nothing saved for retirement in 2022 in personal accounts, including pensions, Individual Retirement Accounts (IRAs) or 401(k)s.

Additionally, Social Security is on pace to deplete its reserves by 2034, meaning the average retiree could receive less than they deserve. The reserves have dwindled over the years, meaning that by 2034, beneficiaries will receive about 20% less than they should unless lawmakers take further action to replenish them.

“It’s no surprise that younger generations, Millennials and Generation Z, are economically insecure,” Fink wrote. “They believe that our generation, the baby boomers, have focused only on our own financial well-being at the expense of the next generation. And when it comes to retirement, they’re right. And we have an obligation to change that before our generation disappears entirely from corporate and political leadership.”

Fink believes that solving retirement problems requires a national solution involving government and business.

“Perhaps once a decade, America will face a problem so big and urgent that government and business leaders will stop business as usual,” he wrote. “They break out of their silos and sit around the same table to find solutions. Recently, technology CEOs and the federal government came together to address vulnerabilities in the U.S. semiconductor supply chain. We need to do something similar for the retirement crisis. “America needs a coordinated, high-level effort to ensure that future generations can live out their final years with dignity.”

automatic for people

Finding the answer starts by looking at what other countries have done. In the Netherlands, retirement age is automatically adjusted as the country’s life expectancy increases in order to keep state pensions affordable. It may be a difficult sell in the US, but people who want to work into their 60s, 70s and beyond should be encouraged to do so.

“What would happen if the government and the private sector treated people over 60 years old not as people who need to retire, but as late workers with a lot of work to do?” Pink wrote.

Another big issue is affordability. About 40% of Americans don’t have $400 left over for emergency expenses like a car payment or a doctor’s visit, so how can they even think about saving for retirement?

These are complex questions that delve into much larger issues related to solving poverty in America, but steps can be taken to make it easier for people to save and invest.

“As a nation, we must do everything we can to make retirement investing more automated for workers,” Fink wrote.

About 17% of people with access to company plans are not enrolled, so companies should consider enacting automatic enrollment in their retirement plans. This will be mandated in 2025 for new 401(k) plans due to new legislation passed by Congress in 2022, and BlackRock is already doing this. But Fink recommends that more companies with existing 401(k) plans do the same. This is because workers are not aware of the plan, are confused, or do not have time to think.

Investing needs to be simplified, he adds, and target date funds are one way to do that, as portfolios move over time based on an individual’s retirement date. BlackRock is also launching a new product called LifePath Paycheck, which will offer 14 retirement plans to about 500,000 people in April. LifePath Paycheck gives plan participants the opportunity to convert a portion of their 401(k) assets into a lifetime source of income once they reach retirement age.

A plan for gig economy workers

Another big change affecting the retirement landscape is the increase in workers in the gig economy, including freelancers and independent contractors who do not have access to company 401(k) plans.

“There are 57 million people in America — farmers, gig workers, restaurant workers, independent contractors — who don’t have access to defined contribution plans. Better investment products can help, but there are limits to what something like a target date fund can do,” Fink said.

But Fink said other countries, such as Australia, have addressed this problem by requiring all employers to put a portion of their workers’ earnings into retirement accounts, regardless of whether they are part-time workers, contractors or freelancers. This applies to all workers between the ages of 18 and 70, and the account is something employees can take with them wherever they go.

This program, called the Superannuation Guarantee, was introduced in 1992. Australia now has the fourth largest retirement system in the world for the 54th largest population and “probably has more retirement savings per capita than any other country”. To Pink.

He believes Australia’s plan could be a good model for the United States, as it has already been enacted in some form in 20 states.

These are just some of the key ideas in Fink’s letter, which you can read in full at BlackRock.com. As Fink writes, he “doesn’t pretend to know the answers,” but he wants to contribute to the national conversation. To that end, he said BlackRock will announce a series of partnerships and initiatives in the coming months to continue the conversation.