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With Americans living longer and spending more years in retirement, the nation’s changing demographics are “putting the U.S. retirement system under immense strain,” according to BlackRock CEO Larry Fink in his annual shareholder letter.
One way to fix it, he suggests, is for Americans to consider working longer before they head into retirement.
“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,” Fink wrote in his 2024 letter, which largely focuses on the retirement crisis facing the U.S. and other nations as their populations age.
Fink, who isworth an estimated $1.2 billion, notes that many 65-year-olds in the early 1950s didn’t get a chance to retire because many had already passed away. In other words, he writes, more than half of workers who had paid into Social Security never got a penny because they died before they could claim the benefit.
“Today, these demographics have completely unraveled, and this unraveling is obviously a wonderful thing,” Fink added. “We should want more people to live more years. But we can’t overlook the massive impact on the country’s retirement system.”
Fink’s suggestions about addressing the nation’s retirement crisis come amid a debate about the future of Social Security, which will face a funding shortfall in less than a decade. Some Republican lawmakers have proposed raising the retirement age for claiming Social Security benefits, arguing, like Fink, that because Americans are living longer, they should work longer, too.
But that ignores the reality of aging in the workplace, with the AARP finding in a 2022 survey that the majority of workers over 50 say they face ageism at work. And because of ill health or an unexpected job loss, many older Americans stop working before they planned to. In fact, the median age of retirement in the U.S. is 62 — even lower than the “traditional” retirement age of 65.
Some policy experts and Democratic lawmakers have proposed alternatives for fixing Social Security without raising the retirement age, as the latter would effectively reduce benefits for millions of Americans. For instance, Sen. Bernie Sanders, an independent from Vermont, wants to lift the income tax cap for Social Security, an idea supported by many retirement experts.
In 2024, any earned income over $168,600 is exempt from the Social Security payroll tax of 12.4%. People who earn $1 million a year effectively stop paying into the program on March 2,according to Rep. John Larson, a Democrat from Connecticut. (Fink’s base salary was $1.5 million in 2022, although his total pay package was $25.2 million that year, a regulatory filing shows.)
Fink is right in saying that the retirement system isn’t working for most households, noted retirement expert and New School of Research professor Teresa Ghilarducci told CBS MoneyWatch.
But his assessment that people should work longer misses the mark, she added. Many Americans haven’t been able to save for their old age, with about 3 in 10 workers age 59 or older havingno money put away for retirement.
And those who have been able to save often don’t have enough to maintain their standard of living, with the average 401(k) account for people 55 to 64 — workers who are approaching retirement — holding $208,000, according to Vanguard. Using the rule of thumb to withdraw 4% of one’s retirement savings each year, that would deliver about $8,300 in annual income.
“After a 40-year-old experiment of a voluntary, do-it-yourself-based pension system, half of workers have no easy way to save for retirement,” she said. “And in rich nations, why isn’t age 65 a good target for most workers to stop working for someone else?”
She added, “Working longer won’t get us out of this. Most people don’t retire when they want to, anyway.”
Vested interest?
To be sure, America’s retirement gap, or the gulf between what people need to fund their golden years versus what they’ve actually saved, isn’t new, nor is Social Security’s looming funding emergency. Yet Fink’s comments are noteworthy because of his status as the head of theworld’s largest asset manager, with more than $10 trillion in assets, including many retirement accounts.
Of course, Fink has a vested interest in Americans boosting their retirement assets, given that his firm collects fees from those accounts. And in his letter, he also promotes a new target-date fund from BlackRock called LifePath Paycheck, which will roll out in April.
“He’s steering the conversation toward BlackRock — and a lot of people who talk about Social Security reform on Wall Street want to privatize it in some manner and make money,” Boston University economist Laurence Kotlikoff, an expert on Social Security, told CBS MoneyWatch.
To be sure, Fink also praises public policy success stories for addressing retirement savings, such as Australia’s system, which began in the early 1990s and requires employers to put a portion of a worker’s income into a fund. Today, Australia has the world’s 54th largest population but the 4th largest retirement system, he noted.
“As a nation, we should do everything we can to make retirement investing more automatic for workers,” he noted.
Fink also writes that his mother, an English teacher, and his father, a shoe-store owner, were never in the top tax bracket. But, he added, they were able to save enough for a comfortable retirement, with funds that could have lasted until they were 100, although they passed away long before reaching that age.
One reason for their secure retirement, he points out, is that as a state employee his mom could participate in California’s state pension system, CalPERS. But access to pensions has halved since 1980, with only about 15% of employees having access to defined benefit plans in 2021 versus 30% four decades ago,according to the Congressional Research Service.
Can boomers fix the problem?
Fink, who was born in 1952, said that his generation has an obligation to help fix the nation’s retirement problems. The financial insecurity facing younger Americans, such as millennials and Gen Z, are creating generations of disillusioned, anxious workers, he noted.
“They believe my generation — the baby boomers — have focused on their own financial well-being to the detriment of who comes next. And in the case of retirement, they’re right,” Fink wrote.
He added, “And before my generation fully disappears from positions of corporate and political leadership, we have an obligation to change that.”
Boomer (and older) lawmakers and politicians often don’t see eye-to-eye on how to fix the retirement crisis. But failing to fix the issue damages not only the retirements of individual Americans, but the country’s collective belief in the future of the U.S., Fink noted.
“We risk becoming a country where people keep their money under the mattress and their dreams bottled up in their bedroom,” he noted.
