about the elongation of life. and once they understand what is happening in terms of life and getting prepared for this, then you could have a sensible dialogue. but at the same time, when we — such an angry conversation right now. well, it doesn’t need to be. that’s what i’m trying to say. we need to educate first. we had the head of the aarp on. and we pointed out about how things have changed and how social security was set up originally and whate could do differently. the only thing he was willing to say you should take the cap off social security. it should go up for people and that would solve the whole problem. social security’s not — is not a structural problem. that could be changed very easily. it’s the entitlement — it’s an entitlement issue. he was not willing to say you should retire a year later, 40 years from now. listen, i’m not worried about the retirees, i’m worried about the young people not putting money to work for retirement. i’m talking about the 230, 35-year-old who is not preparing for retirement today. 2:00 there are ways of mitigating issues for those you make promises whether it’s social security or health care and medicare and those things and those promises in some way or fashion if we don’t educate our participants they have to be met. they’re an obligation of the u.s. government and i could understand our views on this. what i’m trying to suggest, though, we have a lot of men and women who should have the ability to have more choice. where you could build up, you know, an investment vehicle where you have more for retirement.
BlackRock’s CEO: US Needs Mandatory Savings Policy
Larry Fink, Chairman & CEO at BlackRock, explains why in the long-term investors are going to get “duration” in equities, while bonds are no longer providing sufficient return.
Larry Fink, Chairman & CEO at BlackRock, explains why he is trying to make sure that people save more so they are better prepared for retirement.
Transcript:
our guest host for the next hour runs the largest money management firms with assets totaling over $3.9 trillion. also, representative paul ryan who is the chairman of the budget committee former vice presidential candidate is here. and larry, thanks for joining us at the table this morning. nice to be here. it’s great to see you. i thought you were asking me to opine — that’s what i gotf this show, which is go stop this. go stop this. this is not a good transaction for america. it would be — you know, we’re joking about it, but you never know. in the heartland, remember what happened with yoplain? no, it was danon. in wisconsin. they said that’s what they wanted to keep it pronounced. and they didn’t sell it. that wasn’t a huge deal either. yogurt. it wasn’t greek yogurt like you like. anyway, larry, it’s great to have you here. and this was an accident to have you and paul on the set at the same time. it worked out that way. but you two both have one thing in common and that is trying to make sure that people are prepared for the retirement. i know this has been a huge message for you, it’s something you’ve spoken with us here in the past, but you’ve gotten more pointed about this because when you look at the numbers, you’re worried about what you see. how are americans prepared right now? they’re not prepared. i think the biggest issue we have today, bigger than the tax policy is the whole retirement issue. the average american only has $25,000 of savings. which means they are — during the retirement. only 65% of acans who have — who can’t participate in a defined contribution plan participate. so we have a whole group of americans who are just not saving for tomorrow. so security was never meant to be a savings plan. it was meant to be a plan to hold over americans during their retirement age and now we’re living longer. and so even the highest earner only receives $24,000 from social security. and yet, 70% of americans income during retirement comes from social security. because they’re not saving that much. and now the problem is even more enlarged. because if you actually put your money away in bonds 10 or 20 years ago, you enjoyed very good returns. for those who were — who are continuing to put their money in bonds earning 2% or 3%, they’re not going to even get close to their needs unless they start contributing, you know, a much greater percentage of their disposable income, which would have pronounced impact on our economy today. so even the asset allocation issues have to be addressed. and they need to be addressed today. and so i’m sounding the alarms today because i don’t think anyone else is. and if you add this whole concept of elongated life, if we doart addressing it now, the elongation of life which we’re all spending time — sometimes, but we’re doing that because we want to — we intend to live longer. we want to see our grandchildren and hopefully our great grandchildren. we’re spending so little time on making sure that we have the financial wherewithal. what’s the answer? well, you’ll have to be nice to your kids because you’ll have to live with them. i don’t mean that in any joke. that is going to be probably a response that you’re going to see greater and greater. maybe we’re going back where we were 100 years ago where children supported their parents and their parents lived with them. but i don’t see any other outcome other than that or we are going to have to start thinking about ways of creating a different type of mandatory savings policy which i believe we need to do in the united states. it’s a numbers . and paul, you’ve talked about — one of the down sides of qe, we have destroyed the savers. we heard the insurance companies are trying to prepare and we’re pushing people further out on the risk curve, stretching for yield and that creates the own set of asset bubble problems. but to larry’s point and larry and i have talked about this, he’s one of the few people sounding the alarm about this income security problem for people in retirement. don’t forget in 2033, we have a 25% across the board benefit cut to social security. once we run out of the social security ious, then the law current law cuts the rate, the benefits across the board and that’s about a 25% benefit cut coming in the middle of people’s retirements in 2033. so even social security as small as that benefit is for people gets cut by a quarter in 2033. and every year we go down the road of not fixing the problem next year will 2031 or 2032. it’s a problem that the political class in washington is not getting ahead of these problems. that goes farther than what social security is today. the problem is — pay as you go system. social security, the problem is as an individual, we all are contributing 6.25% of our income. and your company’s contributing 6.25% of income. then it’s capped. yeah, it’s 113,000, i believe the cap. so 125.5% of your income. if you calculate how much money you’re putting away and you intend to retire between 65 and 67, you’re not going to get your money back until about 85. and that’s with zero return. that’s right. it is not — it’s never meant to be an investment scheme. it’s meant to be a calamity scheme or backdrop. it’s supposed to be a supplement. an insurance program. and it’s a great insurance policy basically. you have the
