"You Will NEVER Be Able to Afford to Retire" - BlackRock CEO Larry Fink

People working longer should we making a possible facility? Should we frankly increase the age for Social Security? What if I told you there was a $14 trillion crisis brewing in the United States that, until now, virtually no one had been paying attention to? In the most extreme scenario, this crisis has the potential to leave tens of millions of Americans struggling to make ends meet each and every week. What I'm referring to is the retirement crisis occurring right now, as we speak, in the US. It's estimated that the US retirement savings deficit is as large as $14 trillion and growing by the day.

This has Larry Fink, CEO of BlackRock, the world's largest asset manager, ringing alarm bells. Listen to what he had to say. It's a bit of a different, I think, letter from what you've done before. Personal starts with your parents 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, um, but I emphasize it in this letter. And you know, all my letters have been based on some long-term issues. And let me be really truthful about my letters. My letters are a reflection of my conversation with clients, so it is. And so over the past year, I heard more and more conversation about retirement, the retirement crisis from many parts of the world, from middle-class developing countries to developed countries.

Um, the acute problem here in the United States is that we have still 57 million Americans 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 going to be living in poverty, below the poverty line, because it just is not—it's supplemental, but it's not meant to be the totality of what you have in retirement.

And the whole concept of we're aging, we're, you know, we're all living longer. I think one of the big narratives I’ve had to reflect in 2023 was the miracles of medicine when we talk about the drugs like Ozempek and all the different weight loss drugs, how that is extending life. It's conquering kidney disease and liver disease and heart disease and joint disease. And then there are new medicines now for dementia that extend 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? 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 then passed away at, uh, 67.

Today, statistically, uh, a couple, uh, 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. In most places, most people find purpose, obviously, maybe with their grandchildren, their children, their community. Many people find purpose in their jobs.

The thought of retiring at 60, with 30 more years or a 30-year life in front of you, 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'm bullish on capitalism, right? The reason why I'm bullish is 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 in life.

But we solve problems through conversation, right? And the one area where we have no conversation is the affordability of retirement and the whole concept of retirement. We need to start a global, and most importantly, a national dialogue. As crazy as it sounds, nearly 50% of Americans don't have a single dollar saved for retirement. This means that the dream of a life without work in older age is likely going to be out of reach for the majority of Americans.

As a quick side note, make sure to stick around to the very end of this video because we're going to discuss some secret wealth-building hacks that you can use to help make sure you aren't one of those people. It is clear that the retirement system in America is fundamentally broken. But, as you're about to see, things were not always this way. The origins of this problem date back decades.

To demonstrate what I mean, let me take you back in time and introduce you to John. It is the 1960s in the US in our story here. John has just entered his prime working age years. Like many people of his generation, John foregoed college, joining the workforce right after graduating from high school. John got a job working in manufacturing at a local factory in his hometown. Let's call this company ABC Company.

After just a few weeks of training, John was up and running at his job and was a productive employee for ABC. In addition to a salary to support his young family, John also received what is known as a pension for working at the company. For those of you who may not be familiar, a pension is a retirement benefit a company provides to its employees.

I will do us all a favor here and spare you from the complex details and intricacies of pensions. However, what you need to know is that with a pension, the employer is essentially guaranteeing a certain monthly income to the employee once they retire. How much that monthly income will be depends on a variety of factors, but most often it is determined in large part by how long the employee has worked for the company.

The more years of employment at the company, the larger the monthly pension payment at retirement. The fact that the employee knows exactly how much they will be receiving each month in retirement makes pensions what are referred to as a defined benefit program. This defined benefit pension program had two impacts on John.

First, he doesn't have to worry as much about saving for retirement. With a pension, it is the employer that is responsible for making sure the employee has monthly income when they retire, not the employee. The second impact is that John will want to stay with this employer for a long time. The longer John works at ABC Company, the bigger his monthly pension check. In John's generation, it was relatively common for employees to work their entire career at the same company.

Years pass in our story, and our character John eventually had a kid named John Jr. Quite the creative name! John Jr. became a young adult in the 1990s. Instead of joining the workforce right after high school, John Jr. first goes to college. By the time Junior is able to join the workforce, manufacturing jobs are much less common than when John Senior was a young man. Automation and globalization eliminated many manufacturing jobs in the US.

Just like his dad, John Jr. joins ABC Company. However, instead of working at the factory, he works in the company's office as an accountant. There is another big difference between John Junior's job and his dad's. Instead of a pension, John Jr. has what is referred to as a 401(k). A 401(k) is considered a defined contribution plan.

Compared to a pension with a defined contribution plan like a 401(k), the burden of saving for retirement no longer rests with the company. The responsibility of saving and investing for retirement is shifted from the employer to the employee. The employee must allocate a portion of their paycheck into a retirement account. How much, if anything, to contribute to retirement savings is now entirely the employee's decision.

While the shift from defined benefit to defined contribution may seem subtle, it has contributed massively to the current retirement crisis in the US. Here is how Larry described it in his annual letter: the real drawback of defined contribution was that it removed most of the retirement responsibility from the employers and put it squarely on the shoulders of the employees themselves.

With pensions, companies had a very clear obligation to their workers. Their retirement money was a financial liability on the corporate bank balance sheet. Companies knew they'd have to write a check every month to each one of their retirees. But defined contribution plans ended that, forcing retirees to trade a steady stream of income for an impossible math problem.

Because most defined contribution accounts don't come with instructions for how much you can take out every month, individual savers first must build up a nest egg, then spend down at a rate that will last them the rest of their lives. But who really knows how long that will be? Put simply, the shift from defined benefit to defined contribution has been, for most people, a shift from financial certainty to financial uncertainty.

As Larry Fink just explained, the shift from defined benefit to defined contribution has fundamentally changed the way retirement works in the US, ultimately helping contribute to the retirement crisis facing the country. However, things are poised to get even worse. Listen to Larry think talk about why.

Something else you mentioned was our longevity, which has increased substantially. We all benefit from that; that's a good thing, exact not complaining. At the same time, uh, should we be encouraging, as you suggest in your letter, people working longer? Should we make 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 are working longer. We have found purpose in what we do. Um, the founder of Bloomberg, Mike, is still working. Um, 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 in other things, do that.

But I do believe we need to discuss these opportunities. I don't think the average citizen knows the, you know, the extent of how much longer we're going to be able to live. You know, the beauty and the miracles of medicine have allowed us to live, you know, 10, 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 through that conversation, I think most people are going to elect to do things like maybe working longer or electing to be more involved in how they put their money to work for retirement. In the United States, there used to be what is referred to as the three-legged stool of retirement. This analogy was created to show the three most common sources of retirement income retirees counted on for financial security.

First, you had Social Security. Social Security is essentially a government savings program in the US that replaces a percentage of a worker's pre-retirement income based on their lifetime earnings. The second leg is pensions, which we covered in more detail earlier in this video. The third and final leg of the retirement stool is the individual's own personal savings that they were able to accumulate over their working lifetime.

Combined, these three sources of income helped provide stable monthly income to a retiree for the remainder of their life. But over the years, things have changed. As we talked about earlier, pensions have become essentially a relic of the past for private sector workers. As we can see here, 63% of workers received a pension in the year 1988. By 2007, that number had essentially halved to 32%. That number has continued to decrease, with only 15% of private sector workers having access to a pension as of 2024.

Given the declining prevalence of pensions, we can put a big red X through that leg of the stool. Things are only slightly better for retirees when it comes to Social Security. A recent report found that given Social Security's current trajectory, starting in 2034, retirees will no longer be able to receive their full benefit. It's very well documented that it's only a matter of time until Social Security runs out unless major changes happen.

Given the shakiness of Social Security, let's put a big fat question mark on this leg of the stool. All of a sudden, the so-called three-legged stool of retirement is left with only one leg to stand on. This means that in retirement, the only source of income that people can count on to support them is their own personal savings.

As Think explained in the clip, that one source of retirement income will have to stretch even further as people are living longer lives. As we can see here, the average life expectancy of someone in the US was 68 years in the year 1950. It increased to nearly 80 years as of 2024. Given all of the scientific breakthroughs related to medicine and healthcare, this trend is expected to continue.

The United Nations estimates that by the end of this century, the average American will be living to nearly 90 years old. While this is obviously great news for society, longer lifespans mean retirees will need to stretch their savings even further. One solution Think is proposing is to push back the retirement age in the country. Here's what he had to say:

It's not just that more people are retiring in America; it's also that their retirements are increasing in length. Today, if you're married and both you and your spouse are over the age of 65, there's a 50/50 chance at least one of you will be receiving a Social Security check until you're 90. All this is putting the US retirement system under immense strain. The Social Security Administration itself says that by 2034 it won't be able to pay people their full benefits.

What's the solution here? 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. While the situation is dire, I do want to conclude this video with some practical steps that you can personally do to help you be best prepared for retirement, especially if your goal is to not work well past what is considered the typical retirement age currently.

The first thing to do is automate your savings and investing. Many employers offer retirement plans that allow you to have a portion of your paycheck automatically deducted. This is incredibly important because it automatically makes investing part of your monthly budget. Additionally, many of these plans allow you to automatically increase the percent of your income you invest for retirement each year.

So you may start out investing 8% of your income, and that increases automatically by half a percentage point each year. The goal should be to get to 15% of your income being saved for your retirement, an amount that many personal finance experts recommend.

Second is to make sure the money being saved is actually being invested properly. To most people, investing is super complicated. If you have no desire to spend your time researching investments, legendary investor Warren Buffett recommends investing your savings in a low-cost S&P 500 Index Fund. In the words of Buffett, this gives investors access to a diversified portfolio of the country's largest companies.

Third is to build a detailed monthly budget and stick to it. By tracking your spending down to the dollar, you will likely find areas of wasted spending. As just a small example, it is estimated that the average American spends $25 a month on subscription services they never use. Tracking your spending can help you catch even more areas like this where money is slipping through the cracks.

These newfound savings can be used to increase how much you save and invest each month. If you're interested in learning more about how to invest, click on this video here. It covers legendary investor Charlie Munger's advice on how to invest small sums of money. I will see you there.