BlackRock’s co-founder and president, Rob Kapito, believes the United States is about to witness a “silent” retirement crisis. Millions of older Americans may well find themselves outliving their money, a problem that will be particularly acute among “women, people of color and lower-income” Americans.
“People need to retire with dignity, and that’s a tough task in the environment we’re going into,” Kapito said at today’s virtual Next Chapter event, produced by Financial Advisor, the Execution Project and the Money Management Institute. “Everyone should have a path to financial security in retirement. Who thought living longer would be a problem?”
The genesis of the problem is that savers "are sort of left on their own to determine how to manage that savings" and deliver "what we're going to call a post-work income stream, or a paycheck." While that’s a task financial advisors train and specialize in, it’s not easily mastered by many non-professionals.
At present, the onset of inflation is compounding problems. Eleven million people “left the workforce during Covid, and only eight million came back in,” Kapito said. That means “wages are going up.”
One partial answer to challenges facing retireees is lifetime income solutions. Kapito noted that savers have been conditioned to focus on asset accumulation. “We need to reorient participants to thinking [about] income in retirement,” he said. “For most it’s not about market timing, it’s about time in the market.”
Kapito also said these solutions "can be an attraction" vehicle that employers can use to recruit and retain employees.
In the last few years as the environmental, social and governance, or ESG, movement has gained momentum, BlackRock’s role has attracted increased scrutiny. Asked about this issue by Steve Gresham of the Execution Project, Kapito didn’t back down.
“My fiduciary duty is to maximize long-term returns for our clients,” he said. "So to do that I have to be committed to discussing the long-term trends that we see, and then offering our clients choice so that they can decide how they want their money invested. We believe that DC sponsors will strive to have fully sustainable integrated plans over time.
"People want to know what they are invested in," Kapito continued. He compared today’s investors to those buying municipal bonds several decades ago. Investors received a certain amount of psychic income from knowing that their savings were used to build a bridge in their neighborhood.