The Global Retirement Crisis: People Are Living Longer - But Can't Afford To Do So

Thanks to better healthcare, exercise regimens, pharmaceuticals (weight loss, blood pressure, etc), many people are living longer, especially in the US. 

The problem is that a growing percentage cannot afford their extended longevity as guaranteed pensions become obsolete and the cost of living rises. This is becoming a crisis as the vast Boomer generation fully hits retirement age. The question is what steps can be taken to prevent an onslaught of older, financially challenged populations. JL 

Michael de la Merced reports in the New York Times and Jack Pitcher reports in the Wall Street Journal: 

Around the world, but in the US in particular, people are living longer, a trend that's likely to grow with the advent of weight loss drugs like Wegovy. Four in ten Americans do not have $400 in emergency savings, let along proper retirement funds.  

“As a society, we focus on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years. America needs an organized effort to ensure that future generations can live out their final years with dignity. We need 401k-like plans that provide pension-like predictable income streams. (And) no one should have to work longer than they want to but our idea for the right retirement age - 65 years old -originates from the time of the Ottoman Empire. "

As the chairman and C.E.O. of the asset management giant BlackRock, Larry Fink commands attention from companies and governments, helping spearhead movements like socially driven business and the need for companies to fight climate change.

In his latest letter to investors, published on Tuesday, Fink weighs in on a new topic: a looming global retirement crisis, and what can be done to address it.

The way retirement is handled around the world needs to change, Fink writes. Many countries will hit an aging tipping point within the next 20 years, according to his letter, but most people aren’t saving enough for when they stop working.

In the U.S. in particular, people are living longer, a trend that’s likely to grow given the advent of weight loss drugs like Wegovy, Fink writes. But he adds that four in 10 Americans don’t have $400 in emergency savings, let alone proper retirement funds.

“America needs an organized, high-level effort to ensure that future generations can live out their final years with dignity,” he writes, much as tech C.E.O.s and Washington banded together to shore up U.S. semiconductor manufacturing. Fink adds that he has a good vantage point for the problem, given that over half of BlackRock’s $10 trillion in assets are for retirement.

Fink said he wanted to kick off some hard conversations, and offered some initial suggestions:

• Setting up retirement systems to cover all workers, even gig and part-time laborers, as 20 states have done;

• Encouraging more employers to offer incentives like matching funds and making it easier to transfer 401(k) savings;

• Creating systems that allow for 401(k)-like plans that provide pension-like predictable income streams, to reverse what Fink called a historical shift “from financial certainty to financial uncertainty.”

Fink also raises a politically fraught idea: raising the retirement age. The Social Security Administration has said that by 2034, it won’t be able to pay out full benefits, he notes:

No one should have to work longer than they want to. But I do think it’s a bit crazy that our anchor idea for the right retirement age — 65 years old — originates from the time of the Ottoman Empire.

Fink also defended climate-minded investing. His firm has become a target for conservatives for embracing the approach known as E.S.G. But the BlackRock chief said that the transition to green energy was inevitable. “It’s a mega force, a major economic trend being driven by nations representing 90 percent of the world’s G.D.P.,” he writes. (That said, he said he had stopped using the term “E.S.G.” because of its political toxicity.)

He is embracing what he calls “energy pragmatism.” That involves acknowledging the need for energy security, which for many countries will involve relying on hydrocarbons for years, along with cleaner energy sources. “Nobody will support decarbonization if it means giving up heating their home in the winter or cooling it in the summer,” he wrote. “Or if the cost of doing so is prohibitive.”

Fink added that BlackRock hasn’t advocated divesting from traditional energy companies, in part because some are investing in next-generation green tech like capturing carbon from the air.

Wall Street Journal The 71-year-old chief executive of BlackRock BLK -0.17%decrease; red down pointing triangle

 says an aging population is stressing retirement safety nets such as Social Security, an issue that is set to worsen as medical breakthroughs like weight-loss drugs extend people’s lives.

“As a society, we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years,” Fink wrote in his annual letter to shareholders. 

BlackRock, the world’s largest money manager with $10 trillion in assets, says more than half of the assets it manages are for retirement. Getting more people investing more of their assets in capital markets is key to securing comfortable retirements, Fink says.

 

“No other force can lift more people from poverty or improve quality of life quite like capitalism,” he wrote.

Fink offered thoughts on improving retirement systems, addressing the national debt and investing in the global energy transition in a wide-ranging letter that avoided many of the subjects that have generated controversy for BlackRock in the past. 

Two of the biggest economic challenges in the mid-21st century will be providing secure retirements and building the massive amount of infrastructure the world needs for digitization and energy, Fink wrote, adding that capital markets will be key to addressing both.

“In my 50 years in finance, I’ve never seen more demand for energy infrastructure,” he wrote. 

BlackRock is wagering that growing government deficits mean there is an increased need for private financing of major infrastructure projects. The asset manager recently announced its biggest acquisition in 15 years—a $12.5 billion deal to buy fund manager Global Infrastructure Partners—which will greatly expand its infrastructure investing capacity. 

BlackRock’s colossal index-fund business makes it one of the three biggest shareholders in most large U.S. companies. It wields significant shareholder voting power as a result, though Fink’s letter highlighted the firm’s efforts to let its end clients choose how their shares are voted.

BlackRock launched a pilot program last month that lets individual investors holding its largest S&P 500 exchange-traded fund have a say in how their proxy votes are cast for the first time.

In past letters addressed to the CEOs of the companies BlackRock invests in, Fink pressed them to disclose more about the social and environmental effects of their businesses and warned that BlackRock may vote against boards that don’t. 

That landed him in hot water with critics on both sides of the political aisle. Fink dropped the letter to CEOs last year in favor of one letter to BlackRock shareholders and scrubbed any references to politically contentious environmental, social and corporate-governance investing.