With a looming retirement crisis not just for those entering their “golden years” today but for generations into the future, there may be a seemingly simple solution: make retirement savings mandatory.
This was part of an idea proposed by famed BlackRock CEO Larry Fink in a remarks delivered before students of New York University’s Stern School graduate business students this week.
“Because people today spend twice as many years in retirement as their parents or grandparents did, all of us will have to fund these longer lifespans,” Fink said in prepared remarks reported by Politico.
Without pension managers to help invest savings, retirees are dealt another blow in today’s economy, Fink said.
“When individuals manage their own retirement savings – whether in 401(k)s or taxable accounts – we see that they invest much more in traditional fixed income than pension fund managers do,” he said. “But in today’s environment, that isn’t going to deliver the returns they need.”
Companies, governments and individuals are under-prepared for the greying of the global population, but there are several examples were mandatory retirement contributions have proven effective, including a system launched in Australia that requires all part-time and full-time workers to pay into a retirement savings plan, which is owned by the employee, as well as California’s pooled fund for small employers managed by CalPERS, the state employees’ pension fund, Fink says.
“Of course, a mandatory retirement savings system would need to be phased in gradually in order not to create a “shock” to the economy,” he said. “But it would relieve pressure on the federal budget… But most importantly, it would relieve the crisis of financing longevity that will be a drag on our economy and job creation for years to come if we don’t deal with it soon.”
Written by Elizabeth Ecker