When the CEO, Chairman and Founder of the largest asset management company in the world says “Houston, we have a problem!” everyone should cup their ear and listen. BlackRock, Inc. is an American multinational investment management corporation based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world’s largest asset manager with over $4.59 trillion in assets under management. I find several things about this interview pretty amazing, let me explain!
Too Few Have Saved Too Little
Yes, we have a problem and it’s much larger than any of us realize. Too few Americans have saved enough to live “with dignity” in retirement. From the interview:
- Perhaps an even scarier number is the 80 percent of people aged 30-54 believe they will not have enough money put away from retirement, according Census Bureau data.
- According the U.S. Census Bureau, 35 percent of Americans over age 65 rely entirely on Social Security’s monthly benefit, and 36 percent of the general population don’t save anything at all for retirement. That number rises to over 50 percent for workers under age 30.
Social Security: Welfare for Baby Boomers
If you saved money and have other assets to draw upon during your retirement, good for you. The bad news, you are going to receive a lot less from the government than you might have anticipated. The feds will reduce your benefits in 3 ways: flat-out benefit reductions, CPI adjustments that don’t keep pace with inflation and all benefits (Social Security, Medicare, etc…) will be taxed for those with other sources of income. Net/net, the Social Security system will be recast as welfare for Baby Boomers. Finks says:
- “Too many Americans are too dependent on Social Security,” Fink told CNBC, contending the federal program was designed to be a backdrop to other private savings.
- Fink believes not enough Americans have prepared for their sunset years, and it will eventually cost them and the government.
Fink Says, “Double Down!”
This is the part of the article that kills me, Larry says the solution, guess what, buy more stocks!
- “One of the fundamental problems with individuals is they watch the news—whether it’s Ebola, whether it’s the volatility in the world, whether it’s ISIS—they become frightened, and they pull back their investments to, maybe, more in cash,” Fink said.
- That conservatism, combined with large swaths of the public that don’t invest in the first place, may mean missing out on long-term earnings for a nest egg.
- “If you believe that the U.S. is the best place to invest over 40 years,” Fink said. “You’re probably going to be able to assume 6 to 8 percent compounding rate over a long time, owning equities.”
First, the 6 to 8% number is just flat-out wrong. If you adjust for inflation since the early 1900’s the average annual return rates is around 2% (including dividends.) 2nd, timing matters and if you are 50+, now is definitely time to back yourself down and out of stocks. You’ll “lock in” a majority of the gains and avoid the big losses which ALWAYS follow a market that’s close to all-time highs. My 50+ friends, get some $ out of the market, ASAP!