Larry Fink Sounds Alarm on US Retirement System

Larry Fink

Larry Fink, CEO of BlackRock Inc., delivered a stark warning about the future of retirement in the U.S. on Monday at the Securities Industry and Financial Markets Association’s 2024 Annual Meeting in New York. 

Fink, whose 2024 annual letter to investors focused on retirement, focused his remarks to market industry attendees on the growing gap between Americans’ financial preparedness for retirement and what they need in the current retirement system. He highlighted not only the lack of participation in long-term investment strategies, but also the failure of policymakers to address this looming crisis.

“We as a country, refuse to talk about, ‘Do we have the adequate retirement system in place for most Americans?’” Fink said. “We need to seriously ask ourselves: How are we going to do this?” 

The head of the country’s largest asset manager identified the lack of a robust retirement system that encourages long-term investments for American workers. He pointed to Australia’s retirement system as a model worth considering. Despite being a country with only 28 million people, Australia boasts the fifth-largest retirement system in the world, Fink argued. 

“That’s because they have a retirement system that is based on long-term investing principles and equity, where whether you work part-time or full-time, the company that you work with contributes to the retirement system,” he said.

The U.S., in contrast, lacks this level of participation, leaving many Americans vulnerable. Fink also criticized the limited role of Social Security, the foundation of the U.S. retirement system, in safeguarding Americans’ futures. 

“The foundation of retirement in the United States is Social Security, but if that money was put into equities instead of just a debt obligation, most Americans would be a lot better off over the last 50 years,” Fink stated. 

He pointed out that the average Social Security payment is approximately $28,000 a year, a figure insufficient for most retirees to live on, particularly when compounded by rising health care costs and inflation. 

BlackRock has, over the past year, been actively marketing and promoting its LifePath Paycheck, a retirement income solution designed to be used in retirement plans like a target-date fund, with the option to annuitize a portion of the participant’s assets. 

Beyond the issue of individual retirement, Fink took aim at the broader national deficit problem. 

“We’re just not talking about our deficits,” he said. “And we refuse to talk about whether we have the adequate retirement system in place for most Americans.”

Optimism Ahead

Despite his criticisms, Fink struck a note of optimism by emphasizing that it is not too late to address these issues. He urged that greater financial education and participation in long-term investment strategies could significantly improve the retirement outlook for many. 

“The problems really exist when we don’t talk about them,” he said, “What’s great about humanity is we solve problems. What we all do in this room is refocus on [the retirement system of America], relook at it, and have more participation and find more solutions, so more people that live in retirement with dignity.”

Fink also highlighted examples from other countries that are taking proactive steps to improve their retirement systems. In India, BlackRock is working with regulators to develop a new retirement platform similar to the U.S. IRA or 401(k) system, he said. This initiative aims to shift savings from traditional banking into capital markets, fostering long-term growth. 

“That will create a virtuous cycle, elevating the value of their companies and reducing dependency on imported capital,” Fink explained.

In Japan, the government recently doubled the tax exemption size for its NISA account, which functions similarly to an IRA. This move has spurred a rally in Japanese stock markets, showing the power of incentivizing long-term savings. According to Fink, more governments worldwide are waking up to the importance of expanding capital markets and building strong retirement systems, something the U.S. could learn from.

However, Fink’s proposed vision extends beyond simple market mechanics. He touched on the rapid advancements in health care and longevity science, pointing out the growing financial challenges associated with an aging population. 

“We’re finding more science to maximize life,” said Fink. “We’re creating science now that allows us to control the full maximum, and when your due date is ready, you shut down. This is a wonderful miracle. It’s a blessing. And yet we have no conversations about how we afford the elongation plane.”