It's a bit of a different, I think,
letter from what you've done before. Personal starts with your parents.
Right. And their earning.
Saving for retirement and includes your grandkids as well.
Yes. The retirement crisis.
Give us your diagnosis of that problem right now.
Well, it's something I've been writing about for years, but I emphasize it in
this letter. And, you know, all my letters are have
been based on some long term issues. And let me be really truthful about my
letters. My letters are a reflection of my
conversations with clients. So it is and it's over the past year, I
heard more and more conversation about retirement or retirement crisis from
many parts of the world, from middle class developing countries to developed
countries. The acute problem here in the United
States is that we have still 57 million Americans who who don't have any savings
or any retirement plan. Social Security is a fantastic
foundation for retirement. But if that's all you have when you
retire, you're you're going to be living in a in poverty below the poverty line
because it just is. It's supplemental, but it's not meant to
be the totality of what you have in a retirement.
And the whole concept of we're aging, we're you know, we're all living longer.
And I think one of the big narratives of has to reflect in 2023 was the miracles
of medicine. When we talk about the drugs, like was
unpacking all the different weight loss drugs, how that is extending life.
It's it's conquering kidney disease and liver disease and heart disease and
joint disease. And it's and then there are new
medicines now for for dementia that extends life.
So if you think about the miracles of technology and how it transforms our
lives and extends our life, there is not a dialogue in America or most places
about can we afford that longevity? And our entire retirement system was
based on statistics that were created 50 years ago whereby most Americans retired
between 60 and 62 then, but most Americans passed away at 67.
And today, statistically a couple 60 years old, in good health, one of them
is going to live over 90. And so the other question is, should we
re-evaluate how we work and how long we work?
Because we all need purpose in life. And in most places, most people get find
purpose, obviously, maybe with their grandchildren, their children, their
their community. Many people find purpose in their in
their jobs. And the thought of retiring at 60 with
30 more years or a third of your life, your life in front of you.
This we need to have a dialogue. We need to have a conversation.
And, you know, I'm an optimist. I am a very optimistic about the long
term vitality of our markets. I'm bullish on capitalism.
The reason I'm bullish is that when I read the newspapers every morning and
listen to Bloomberg and other news organizations,
it's full of scary things. We talk about the problems, we talk
about all the problems, but we solve problems through conversation.
And the one area where we have no conversation is, is the affordability of
retirement and the whole concept of retirement.
And we need to start a global and most importantly, a national dialogue.
So in your letter, you have a very powerful, I think, diagnosis of the
problem, not just the United States, but globally.
Yes, we need we're living longer. We need more money, therefore, to live
at the same time. And there's also a bit of a pattern
there to capitalism. Absolutely.
Capital markets and the extraordinary things they've done, What they can do is
connect the two of those up. Could we use the capital markets to
address at least some of the problem or talk about And let me be very specific.
Social Security, you mentioned, is really in trouble.
Should we be taking the Social Security trust fund, what's left of it, and put
it into capital markets? We need to put it in a long term
investment. I mean, we have a system of pay as you
go. Okay.
There are other countries like Australia that have a whole unique system whereby
you're contributing. But there are right now in Congress, a
number of senators and congressmen are talking about
rehabilitating our Social Security pool and maybe contributing a big block of
money into it. So it has sufficiency.
But to me, as I said, Social Security is just a foundation of retirement.
We need to really educate our citizens about the need for savings
we see worldwide. Most people who are really thrifty, they
keep most of their money in a bank account, like in Japan.
Almost. There's a high savings rate of 18%.
Most of that is in a bank account. In Europe, there's a high savings rate
of 15 ish percent. Most of that's in a bank account that is
not going to provide you the adequacy of the compounding or what capital markets
can do. But probably one of the big
conversations I've had with so many political leaders is the connection of
retirement and the capital markets. When you think about the vitality of the
US capital markets so much, it's based on the long term money of pension funds
of of our whether it's a defined benefit plan or defined contribution plan.
And Americans are more optimistic. And so we have a higher investment in
equities beyond any other society.
And so in my conversation with many political leaders, as we think about
retirement and Japan is a great example, the Kishida government just this past
October raised the amount of tax deductibility to put in your 41k, they
doubled the size. And it's not a coincidence that the
Japanese equity market since October is up 30%.
And it's because we're seeing more and more money that is going into the long
term capital markets. So not only does it give a financial
returns for those who are retiring and saving for retirement, but it's a big
foundation for domestic companies to have local investing in
their own companies. If you look at the United States, our
equity markets generally treated a 2 to $0.03 e ratio higher than any place in
the world. Now, you could argue we have better
companies in any other place in the world, but you also have to attribute
this to that. We have a larger retirement system in
terms of what we invested. Now, that doesn't mean we need and we
need more we need more money for more people to be putting it into their
system. Take it a step further because something
you're very involved in BlackRock is is alternative investment in the private
markets, credit debt, things like that. Should we be changing the rules so we
can put our for one case or IRAs into private markets?
I believe there are some great areas of private markets that are going
to be great investments for retirement, and I would channel that more towards
infrastructure because infrastructure is has a long maturity.
It has a higher coupon, but it has a lower profile of returns
than what I would say, other areas of the private market.
So it has a more a good corridor of returns, but higher probabilities of
meeting those returns. And so, yes, we need to be relooking at
how we think about investing, whether that is going to be in private equity or
infrastructure. I do believe we need to be putting more
long dated assets into retirement and so that you could so that you could meet
the returns that you need to have the pool of money that you acquire during
during retirement. Something else you mention was our
longevity, which has increased substantially.
We all benefit from that. It's a blessing thing, a complaining at
the same time. Should we be encouraging, as you
suggest, to let our people working longer?
Should we making a possible facility? Should we frankly increase the age for
Social Security? That is not for me to make a decision,
but I think we need to have a conversation.
Look, you and I are the same age. Okay?
We're working longer. We have find purpose in what we do.
The founder of Bloomberg, Mike, is still working,
I believe. I believe for those who can and they
find purpose in work. My gosh.
Work as long as you can. If you find blessings, if you find
purpose and other thing, do that. But I do believe we need to discuss
these opportunities. I don't think the average citizen knows
that you know, the extent of how much longer we're going to be able to live.
You know, so the the beauty and the miracles of medicine has allowed us to
live in, you know, ten, 15, 20 years longer than two generations ago.
And and so but we haven't changed our system of retirement or our system of
Social Security. So the most important thing we need to
do, David, is have a conversation. And and to that conversation, I think
most people are going to elect to do things.
They'd be working longer were electing to be more
to be more involved in how they put their money to work for retirement.
As I say in your letter, you talk a lot about the success of the capital
markets, all that they've accomplished. At the same time, you do mention the
problem with particular US debt. You think it's more or.
Urgent than any time. I think you said you can remember in
your lifetime. Put those two things together.
To what extent has the success of the capital markets come specifically
because we've taken more debt on the public balance sheet?
We've shifted debt from private balance sheets to public balance sheets.
No question. But let's just use a statistic that I
think when I talk about this statistic, I get frightened.
In the year 2000, the US deficit was $8 trillion.
Today, it's $34 trillion. So 23 years later, we increased our
deficit by $26 trillion. So for the first 230, 40 years.
We increased our deficit to 8 trillion. And in the last 23 years, we went we we
increased it by $26 trillion. I think that speaks volumes of what's
happening in our in our in our country today.
The problem with these tepid deficits is and now with and I believe, higher
interest rates for longer. The cost of financing our deficits are
going to erode more and more of our of our disposable income as a country.
And I do believe they're we're getting to a point where our public debt is
going to start up crowding out private capital and we're going to have
structurally higher interest rates. What can the private sector do to
trigger some action in that regard? I mean, you're the head of the largest
asset manager in the world, Larry Fink. It's not just you, but you have some
influence. At this point, we have candidates
running for president who are even talking about this, not even the
conversation. So
in my letter, I talk about the need for more public private investments.
But the United States is one of the last countries where we've had private
capital investing and in our infrastructure.
And I believe if we changed our policies, privatized our airports and
privatized maybe our ports and having private capital investing that, then our
public spending could be rededicated to more urgent social needs, more urgent
needs. Elevating her education, elevating, you
know, our, you know, issues around Social Security and health care.
And so I believe the need is to rethink what is the role and responsibility of
the public sector for the development of better 21st century infrastructure.
We know that we are going to have to digitize our entire economy.
We know we're going to have to move forward on decarbonization.
These require huge pools of money. Allow the private sector to be part of
that. We have this enormous functional capital
markets that can provide the capital we as a country must use it more often and
access the role of private sector. And so I think we still
you know, that does not change the course of our deficits, but we can
certainly reallocate some of our monies into more urgent issues.
And I would say and my letter speaks about it
to we need to grow our economy. So our deficits are a smaller component
of our GDP. That is the bigger issue.
If our if we continue to just grow at 2% and we have these type of deficits,
that's when the deficits really are going to be a problem out five and ten
years, which you suggest 3%. Is that realistic?
We need that has to be our target. We need to find ways of growing at 3%
instead of just cutting taxes. Or we need to find ways of incenting
private capital to be investing more. We need to encourage growth and we need
to be. And this is a debate now, and there's a
lot of people talking against us. We need to embrace our capitalism
because our capitalism has shown to be the best economic force in the world.
And finally, let me go back to the personal here for a moment.
As you mentioned, you and I happen to be exactly the same age, right?
We're boomers. Yes.
We have some responsibility to the succeeding generations that I'm not sure
we deliver. How much of your letter was really
saying to us, boomers, we owe it to our children, our grandchildren to get our
arms around these problems. We were born at a great economic moment.
It's that we all have a responsibility to try to recreate that environment for
our grandchildren and hopefully make a better outcome for our children.
But now, at our age, we've got to be focusing on the future for our
grandchildren.