BlackRock's Fink on How to Solve the Retirement Problem

I think it's a slightly different letter than what you've done before. The personal starts with your parents. Good. And your profits. Saving for

retirement

also includes your grandchildren. 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 have been based on long-term issues. And let me be really honest about my letters. My letters are a reflection of my conversations with clients. That's right and that's right, over the past year I have heard more and more conversations about retirement or the retirement crisis in many parts of the world, from middle class developing countries to developed countries.

The serious

problem

here in the United States is that we still have 57 million Americans who have no savings or retirement plan. Social Security is a fantastic foundation for retirement. But if that's all you have when you retire, you'll live in poverty below the poverty line because that's what it is. It is complementary, but not intended to be the entirety of what you have in retirement. And the whole concept that we're getting older, you know, we're all living longer. And I think one of the great narratives that we must reflect on in 2023 were the miracles of medicine.

When we talk about medications, we look at all the different weight loss medications and how that prolongs life. It is conquering kidney, liver, heart and joint diseases. And now there are new drugs for dementia that prolong life. So if we think about the miracles of technology and how it transforms and extends our lives, isn't there a conversation in America or most places about whether we can afford that longevity? And our entire retirement system was based on statistics that were created 50 years ago that most Americans retired between the ages of 60 and 62, but most Americans died at 67. And today, statistically, a 60-year-old couple, in good health, one of them will live to be more than 90 years old.

So the other question is: should we reevaluate how we work and how long we work? Because we all need a purpose in life. And in most places, most people find purpose, obviously, maybe with their grandchildren, their children, their community. Many people find purpose in their work. And the idea of ​​retiring at 60 with 30 more years or a third of your life, your life ahead of you. This we need to have a dialogue. We need to have a conversation. And you know, I'm an optimist. I am very optimistic about the long-term vitality of our markets. I am optimistic about capitalism.

The reason I'm optimistic 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 problems, we talk about all problems, but we

solve

them through conversation. And the one area we don't have a conversation about is retirement affordability and the whole concept of retirement. And we need to start a global and, most importantly, national dialogue. So, in your letter, I think you have a very powerful diagnosis of the problem, not only in the United States, but globally. Yes, we need to live longer.

We need, therefore, more money to live at the same time. And there is also a pattern in capitalism. Absolutely. The capital markets and the extraordinary things they have done. What you can do is connect them both. Could we use the capital markets to address at least part of the problem or talk about it? And let me be very specific. Social Security, as you mentioned, is really in trouble. Should we take the Social Security trust fund, what's left of it, and put it into the capital markets? We need to put it into a long-term investment. I mean, we have a pay-as-you-go system.

Well. There are other countries like Australia that have a unique system through which you contribute. But right now there are several senators and congressmen in Congress who are talking about rehabilitating our Social Security fund and perhaps contributing a large amount of money. Then it is enough. But for me, like I said, Social Security is just a foundation for retirement. We need to really educate our citizens about the need for savings that we see around the world. Most people who are really thrifty keep most of their money in a bank account, like in Japan. Almost. There is a high savings rate of 18%.

Most of it is in a bank account. In Europe, there is a high savings rate of 15 percent. Most of it is in a bank account that will not give you the adequacy of capitalization or what the capital markets can do. But probably one of the big conversations I've had with so many political leaders is the connection between retirement and the capital markets. When you think so much about the vitality of the U.S. capital markets, it relies on long-term money in pension funds, whether it's a defined benefit plan or a defined contribution plan. And Americans are more optimistic.

And that is why we have a greater investment in shares than any other company. And so, in my conversation with many political leaders, as we think about retirement and Japan is a great example, the Kishida government last October increased the amount of tax deductibility to put into your 41k, they doubled the size. And it is no coincidence that the Japanese stock market since October is up 30%. And it is because we are seeing more and more money being allocated to long-term capital markets. Therefore, not only does it provide financial returns for those retiring and saving for retirement, but it is also a great foundation for national companies to have local investments in their own companies.

If you look at the United States, our stock markets generally traded $2 to $0.03 higher than anywhere else in the world. Now, you could argue that we have better companies anywhere else in the world, but you have to attribute this to that as well. We have a larger retirement system in terms of what we invest. Now that doesn't mean we need and need more, we need more money for more people to put into their system. Go a step further because something you're very involved in at BlackRock is alternative investing in private markets, credit debt and things like that.

Should we change the rules so we can put our single-case IRAs in private markets? I think there are some great areas of the private markets that will be great retirement investments, and I would funnel that more into infrastructure because infrastructure has a long maturity. It has a higher coupon, but it has a lower profitability profile than, I would say, other areas of the private market. Therefore, you have a better return corridor, but higher odds of achieving those returns. So, yes, we need to review how we think about investing, whether it's in private equity or infrastructure. I think we need to put more long-term assets into retirement so that you can achieve the returns you need to have the pool of money you acquire in retirement.

Another thing you mention is our longevity, which has increased substantially. We all benefit from that. It is a blessing and a complaint at the same time. Should we encourage, as you suggest, our people to work longer? Should we do a possible installation? Should we frankly raise the age to access Social Security? It's not my place to make a decision, but I think we need to have a conversation. Look, you and I are the same age. Well? We are working longer. We have found purpose in what we do. I think Bloomberg founder Mike is still working. I believe for those who can and find purpose in work.

My God. Work as much as you can. If you find blessings, if you find purpose and other things, do it. But I do think we need to discuss these opportunities. I don't think the average citizen knows how much longer we can live. You know, the beauty and the miracles of medicine have allowed us to live, you know, ten, 15, 20 years longer than we did two generations ago. And so on, but we have not changed our retirement system or our Social Security system. So, David, the most important thing we need to do is have a conversation. And in that conversation, I think most people will choose to do things.

They would work longer if they chose 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, about everything they have achieved. At the same time, you mention the US debt problem in particular. Do you think it's more or. Urgent that at any time. I think you said you can remember it in your lifetime. Put those two things together. To what extent is the success of the capital markets specifically due to the fact that we have put more debt on the public balance sheet?

We have moved debt from private balance sheets to public balance sheets. No doubt. But let's use a statistic that I think when I talk about it, it scares me. In 2000, the US deficit was $8 trillion. Today it is 34 billion dollars. So, 23 years later, we increased our deficit by $26 trillion. Thus, during the first 230 or 40 years. We increased our deficit to 8 billion. And in the last 23 years, we increased it by 26 trillion dollars. I think that says a lot about what is happening in our country today. The problem with these tepid deficits is (and I think now) higher interest rates for longer.

The cost of financing our deficits will increasingly erode our disposable income as a country. And I think we're getting to a point where our public debt will start to crowd out private capital and we'll have structurally higher interest rates. What can the private sector do to promote action in this regard? I mean, you're the head of the world's largest asset manager, Larry Fink. It's not just you, but you have some influence. At this point, we have presidential candidates who aren't even talking about this, not even talking about the conversation. Therefore, 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 have had private capital investing in our infrastructure. And I think if we change our policies, privatize our airports and maybe privatize our ports and have private capital to invest in that, then our public spending could be rededicated to more pressing social needs, more pressing needs. Elevate your education, elevate our issues related to Social Security and healthcare. That is why I believe that it is necessary to rethink the role and responsibility of the public sector for the development of a better infrastructure for the 21st century.

We know that we are going to have to digitize our entire economy. We know that we are going to have to advance in decarbonization. These require huge amounts of money. Allow the private sector to be part of that. We have these huge functional capital markets that can provide the capital that we as a country need to use more often and tap into the role of the private sector. So I think we still know that it doesn't change the course of our deficits, but we can certainly reallocate some of our money to more pressing issues. And I would say, and my letter talks about this, that we need to grow our economy.

So our deficits are a smaller component of our GDP. That is the most important problem. If we continue to grow at 2% and have this kind of deficit, then that's when deficits will really be a problem in five or ten years, which is what you suggest at 3%. Is that realistic? We need that to be our goal. We need to find ways to grow at 3% instead of just cutting taxes. Or we need to find ways to incentivize private capital to invest more. We need to encourage growth and we should be. And now this is a debate and there are many people speaking against us.

We need to embrace our capitalism because our capitalism has proven to be the best economic force in the world. And finally, let me get back to the personal for a moment. As you mentioned, it turns out that you and I are exactly the same age, right? We are boomers. Yes. We have a certain responsibility to future generations that I am not sure we will fulfill. How much of your letter is really telling us boomers that we owe it to our children and grandchildren to address these issues? We were born in a great economic moment. It's just that we all have a responsibility to try to recreate that environment for our grandchildren and hopefully achieve a better outcome for our children.

But now, at our age, we must focus on the future of our grandchildren.