BlackRock's Fink on How to Solve the Retirement Problem

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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.
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Channel: Bloomberg Television
Views: 130,885
Rating: undefined out of 5
Keywords: BlackRock Inc., David Westin, Economy, Gen Z, Larry Fink, Pension funds, Pensions, Retirement, Retirement Planning, Savings, baby boomers, insurance, medicare, social security
Id: hOz19yUXWlE
Channel Id: undefined
Length: 14min 12sec (852 seconds)
Published: Tue Mar 26 2024
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