Make Retirement Savings Mandatory Before It’s Too Late?

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

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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.”

Watch the full presentation via NYU

Written by Elizabeth Ecker

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  • So in the last century what has happened? A century ago there was no such thing as retirement savings. FDR (and others) pushed for Social Security. Then there was a general understanding that employers had at least some responsibility to care for their employees in retirement and a large adoption of defined benefit plans. Then in the 80s employers were trying to get out of their defined benefit plan obligations.

    Now it seems the collective conscience of employers is being bothered but rather than using their huge treasuries (accumulated profits) to care for this need, they have adopted the idea that “God helps those who help themselves.” To them that means force the employees to pay for their employee benefits out of their compensation.

    What bothered the employers to put together this “new” idea? Projected government spending and tax revenues needed in the future from higher income taxpayers.

    So in the twenty-first century we have gone from industry leaders finding ways to support their employees in retirement to finding ways to place the entire responsibility on the employees themselves. Where is Tennessee Ernie Ford when you need him? “You load sixteen tons. What do you get? Another day older and deeper in debt. Saint Peter don’t you call me ’cause I can’t go. I owe my soul to the company store….” Yelp, next thing you know and we will once again have company stores.

    You have to love American progress especially when it comes to employee benefits.

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