Expanding prosperity will build a secure retirement

For the second year in a row, Larry Fink’s annual letter to investors focused a great deal on retirement in the U.S., noting “the situation is dire.”

In his letter, the chairman and CEO of BlackRock, the world’s largest asset manager, highlighted that there are a number of pressures facing American’s planning for their retirement years.  These include the fact that public pensions face significant shortfalls and about one-third of Americans have no retirement savings – no 401(k) plans or pensions. Citing a recent BlackRock survey, he notes that, “more than half of Americans still fear outliving their savings more than death itself.”

So what safety net is left for those with little to no retirement savings? Social Security, a system that nearly every expert acknowledges will soon not be able to meet its obligations. Fink points out that even if Social Security is fully funded, it will not meet the needs of retirees. There is a real need for other means of financial security.

“A good retirement system provides a safety net to catch people when they fall,” Fink wrote, “…a great system also offers a ladder—a way to grow savings, compounding wealth year after year.” That’s the difference between Social Security and retirement plans or pensions.

The BlackRock survey also found respondents reported they need a little more than $2 million in savings to retire comfortably — a sum that very few Americans have, or will have when they retire. Less than 20 percent of those surveyed are very confident they will have enough money to live on throughout their retirement years. Maybe even more telling, one-third of respondents would have difficulty covering an unexpected $500 bill.

How do we address this “dire” situation? Fink states in his letter that to expand prosperity for more people, investing must be democratized, enabling more people to participate in the capital markets. He identified three ways to spur retirement savings.

First, he suggested expanding emergency savings accounts or rainy-day funds so Americans don’t have to choose between saving or covering a surprise expense. This idea was included in the SECURE 2.0 Act, allowing for penalty-free withdrawals of up to $1,000 per year, but could be further simplified and refined.

Second, the small business 401(k) gap that exists in America. Half of U.S. workers are employed by small businesses, and still half of those businesses do not offer retirement savings plans. Policymakers can, and should, lean in more to help incentivize small business to offer plans and auto-enroll workers.

Finally, help workers start investing earlier. At the BlackRock Retirement Summit that took place in March, Sens. Corey Booker (D-NJ) and Todd Young (R-IN) discussed the idea of opening investment accounts for all Americans on the day they are born –  so-called “baby bonds.” Though this is not the only solution, it is one of many that would allow a small investment to grow over a lifetime, and instill the value of saving for retirement from the start.

There is no shortage of ideas on how to address the retirement crisis. What is lacking is combined efforts and action. In a time when people are living longer and pensions and Social Security are less available or uncertain, the problem will only compound. To solve it, we must come together to ensure every American has the opportunity for financial freedom and a secure retirement.