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The Bid - 5 Forces Shaping Retirement
Episode Description:
In periods of volatility, investors can often be short sighted when considering the outlook ahead. But your retirement is a journey that's not only personal, but also profoundly influenced by external factors. Anne Ackerley, head of BlackRock's Retirement Group joins host Oscar Pulido to help us consider the current market conditions from a retirement lens and explains the five major forces that are shaping the retirement outlook.
Sources: AgeWave analysis (US Census Bureau, 2000); How Americans Save, Vanguard 2022; ICI, EBRI 2022; BlackRock's 2023 Read on Retirement (TM); AARP 2022; WEF 2023, What's really driving the gender retirement savings gap?;
Written Disclosures in Episode Description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures
TRANSCRIPT:
<<THEME MUSIC>>
Oscar Pulido: Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I’m your host, Oscar Pulido.
How do you feel about your own retirement during uncertain market conditions? In periods of volatility, investors can often be short sighted when considering the outlook ahead. And your retirement is a journey that's not only personal, but also profoundly influenced by external factors.
These forces can make or break your retirement dreams and understanding them is crucial for anyone looking to secure their financial future. So, what should investors be thinking about today when planning for tomorrow? Here with me today is Anne Ackerley, head of BlackRock's retirement group. Anne will help us consider the current market conditions from a retirement lens and will walk us through the five major forces that are shaping the retirement outlook. Anne, welcome to The Bid.
Anne Ackerley: Thank you so much for having me.
Oscar Pulido: Anne you're a frequent guest on the podcast, so it's good to have you back. And when you've been on in the past, you've talked about the retirement challenges that women investors have, you've talked about the need for more resilience in retirement plans. And today you're here to give more of a State of the Union address about the retirement industry. I know you released a paper earlier this summer, so what are some of the things that are going on that you want people to know about?
Anne Ackerley: Well, I’m excited to be back here talking about my favorite subject, retirement, and I'm glad that you called it, the State of the Union. that's really what we had in mind when we wrote the paper, and it's about the five forces that are impacting retirement in the United States. It's probably no surprise to you that retirement today is kind of a mixed bag. There are a lot of things that are really quite challenging, but there are things that are working, and we wanted to really focus on that as well. The five trends that really stick out to us are the following:
So, one, Americans are living longer.
Two, there's been this move from defined benefit to defined contribution.
Three, there's Millions of Americans actually don't have access to a workplace retirement plan.
Four, there's a really great need and a great desire for, lifetime income.
And then finally, the racial and gender, disparities continue to exist in retirement. Before I go through all of these, or I hope we get to all of these today.
Oscar Pulido: We definitely will.
Anne Ackerley: I did want to double down on maybe the first two and just do that as scene setting for the rest of the conversation.
So, longevity, Americans are living longer and actually, in the 20th century, we added 30 years of life. We went from 49 years to 79 years in just that short amount of time. And when you think about historically, people have been around for thousands and thousands of years, and it's just been this massive change in longevity.
Now, one thing I do want to just point out, we talk about average longevity in the United States. It is not the same for everybody, and we do need to be aware of the differences. It differs by race, by ethnicity, by gender, by socioeconomic status. And actually, over the last couple of years, longevity has actually been on the decline in the U. S.
But generally, overall, Americans are living longer, and it should be a good thing. Now at the same time that Americans are living longer, our society is also aging. We are going to have more and more people over 65. In fact, within the next couple of years, there'll be 15 million Americans over 65, and that is unprecedented. It's also unprecedented math. All these people are going to have to find a way to pay for these longer more expensive retirements. And interestingly, the one thing that hasn't changed in that time frame has actually been the retirement age. So, while we're living longer, people are still retiring right about the same age, 62, 63, on average, that they were, 40, 50 years ago.
The last thing I'll say, is that the tools that people have to save have also changed during this time period. And there's been this kind of massive shift from defined benefit to defined contribution. I think for most people listening to the podcast, probably very few of them will have guaranteed pensions. Maybe some of the lucky ones, maybe some of the people who are working in the public sector. But for the most part, people will have, defined contribution of 401K plans, which really means the onus is on the individual now, not the company, for people to save and invest and then ultimately figure out how to spend their money in retirement.
Now, it sounds like, whoa, is that a good thing that we've moved from defined benefit to defined contribution? There are some good things about that in a lot of ways.
Oscar Pulido: So just taking a step back, you mentioned, living longer is a good thing, but it requires more planning and you're right about that retirement age point because I can think about my parents. Both have retired in that mid 60s, but yet, their life expectancy has gone up relative to history. So, let's just go back though to define benefit, define contribution. Defined benefit, a company is responsible for a pension that an employee gets after they retire. But there's been a shift towards defined contribution where that employee now is responsible for making their own investments, and they dictate what their retirement pot's going to look like at retirement. So why is that move to defined contribution so impactful to the industry?
Anne Ackerley: You know, 401k plans have helped millions of Americans be better prepared for retirement. and there are two things that have happened with the rise of 401k that have helped that. And we call them the autos, like automobile, but they, actually automatic enrollment.
And automatic escalation, so the autos, and also the rise of the target date fund. So those two things have actually helped more and more people be prepared. So, what is, auto enrollment?
You start at a company; you're automatically put into the 401k plan. money is taken out of your paycheck. And it gets invested into the plan. You don't have to do anything. And in this way, inertia works for you. You're just put into it. Auto escalation means you start out at an initial contribution, and generally every year that contribution might increase by half a percent or a percentage up to a maximum amount. often, it's timed with when people get raises and the concept of auto escalation is that people might not even notice that they're saving even more money. both those things have helped people be more prepared. the second thing, I would just say target date funds, I'm sure we'll talk a lot about them, but they have also been a major, I'd say revolutionary transformation that has happened over the last 30 years in retirement.
Oscar Pulido: The auto part is, it's interesting to me, it would seem like somebody should just do that on their own, but there's also a behavioral aspect of sometimes people need that nudge, you use the word inertia that once it's done for them, they're not tending to reverse that, right?
Anne Ackerley: Absolutely. Look, people are busy. People are out there living their lives, they're working, maybe they're having families, they're volunteering, they're just doing so many things. And the idea that you have to remember to sign up for something, and I will just use my 30-year-old son as an example, because he's in a school that they actually don't have auto enrollment.
And just yesterday I asked him. Did you enroll? And he's like, Oh, I need to go check. You know, people are busy. And all these autos, the doing it for you, and these nudges have really helped. And just on auto enrollment, we know that when people are automatically enrolled, it's something like 98 percent of people or 95 percent of people stay enrolled in the plan. When you have to do it yourself. The number is something like 28%. People are busy, and they think they're going to get to it, and they don't get to it.
Oscar Pulido: So, it's in their best interest,
Anne Ackerley: A hundred percent.
Oscar Pulido: So, your son is 30 years old. It turns out that Target Date Funds, at least the ones at BlackRock, are also celebrating 30 years this year. You've talked about the importance of Target Date Funds within the retirement ecosystem, so maybe take us back, why was it important that Target Date Funds came of age 30 years ago? What's the state of them today? When you look ahead, are some of the evolutions coming to Target date Funds?
Anne Ackerley: This is the 30th anniversary of the Target Date Fund, and BlackRock did pioneer it, 30 years ago. Really, what a Target Date Fund does is take the complex job of trying to figure out how you should invest over your career, and it does it for you. Target date funds are basically a mixture of equity and bonds and that mixture changes over the course of your career. It's more in equities when you're young and then target date funds take risk off the table as you get closer to retirement.
And really the only decision that you need to make is, quote unquote, the target date. What is the year that you think you will retire? You pick that and then you're put into it, and it does all the investing for you, both, what we call the glide path, the mix of stocks and bonds, as well as the asset allocation within that.
Really revolutionary just transformed. What happened with 401k plans. Today, something like 36 million Americans use a target date fund, and they are the primary default vehicle, in over 90 percent of 401k plans. So, this is just a way that we've made it easier and simpler for people to be invested appropriately during the course of their life, and I'm just really proud that BlackRock pioneered this amazing vehicle.
Oscar Pulido: I'm thinking about how you said it and people are busy. within the retirement ecosystem, this concept of enrolling them automatically escalating their savings, and then within the target date fund, it sounds like making adjustments in the portfolio is also happening automatically. So, all of this creates, hopefully, a better long-term experience for the person in 30, 40 years or whenever it is that they're retiring.
Anne Ackerley: You know, if you put yourself in a 401k plan, let's say you put yourself in a certain non target date fund, you get busy in life, you forget about it, maybe you're not changing your asset allocation often enough, maybe you started in cash. And you're young, you shouldn't be in cash, as you get older, you probably shouldn't be in all equities. it does it for you, and you really don't need to think about it as you're busy living your life and doing the things you want to do.
Oscar Pulido: And then one day you retire, and you have this pool of money that ideally, you've been very diligent about and saving and so you've talked about then the need for that person to have retirement income or at least the concept of retirement income becomes important to that individual because now I have this pool of money. I'm no longer working. how do I consume and how do I maintain that day to day that I was accustomed to having? So, maybe talk a little bit about this concept of then retirement income and why it's so important.
Anne Ackerley: Absolutely. The number one financial fear in the United States is the fear of outliving your savings. And it's actually, it does make sense if you think about it. as you said, you retire, you no longer have income coming in, and you've got this pool of assets. And, in the United States now, because we're in 401k plans, it's really up to you to figure out how to spend that money and spend it so that you won't run out of it. And yet, you don't know how long you're going to live. You don't know what the markets are going to do, and you probably don't really know what your expenses are going to be, particularly if you're going to have some sort of larger medical expense or some unforeseen expense, and yet we say, everybody, hey, go figure this out.
Bill Sharp, the Nobel Laureate, has called this the nastiest, toughest problem in finance. Particularly as people are aging, more and more people are retiring, people are getting very focused on retirement income. The question of how do I spend my money so I can continue to live the life I want, but not run out.
And we've looked at surveys, 98 percent of employees want help with this, or over 90 percent of employees want help with this. 98 percent of employers I think they should be helping people with it. If you look back, people were very focused on that accumulation phase, the saving phase, now people are really starting to think about, how do I generate this income stream? at BlackRock, we've been very focused on this. we've taken the concept of the target date, and we've extended it. And we have come up with a strategy that embeds annuities into the target date strategy so that when a person gets to retirement, they would have the option of perhaps annuitizing and getting some form of guaranteed income.
And all embedded within a target date, which people know, and now we've put a guaranteed, piece into that as well. So, they're trying to bring back some of the defined benefit aspects. But still within the confines of a defined contribution plan. it's industry innovation, I think, at its best. There's just, the fact that people are living longer, the fact that they want help, employers wanted help, we've really pulled together to come up with something that we think can give people real help in figuring out how to spend in their retirement years.
Oscar Pulido: And so, everything you've talked about is around, if you have a retirement plan, if you work somewhere that offers you target date funds or a company has a 401k plan, right? The economy's changed a lot over the years and I think there's a lot of companies that don’t necessarily offer target date funds or a worker that doesn't have access to a good retirement plan. And I think your report actually maybe even touches on it and shares some data on this, but what does that person do? Like how do they get set up for success if they don't have access to all the wonderful, we'll do it for you sort of features that you've talked about?
Anne Ackerley: So, this is a great question, and it is something I'm extremely passionate about. It goes without saying that all these good things that I've talked about, all the innovation, is only available if you, in fact, have access to a workplace plan where you work.
And today, 57 million Americans do not have access to a workplace plan. That's about 48 percent of private sector workers, so think about that, almost half of the people who work in the private sector don't have access to a workplace plan. Now a lot of that is small to medium sized businesses. Historically, small business has found it costly, hard to administer. they may not have HR departments who are able to do this. And so, the industry has really tried to work on how can we get more people plans, because we know that when you get, a plan at work, you're 15 to 20 times more likely to save.
You ask me, what do people do if they don't? They've got to go and probably set up some kind of IRA. And then they have to remember to take money out of their paycheck and invest. They've got to figure out their investments. And it's just shown that people will save 15 to 20 times more if they have access at their workplace plan.
And so, the industry's been focused on how do you increase access. And one of the things that has really changed over the last few years is technology. Technology is making it easier and simpler and cheaper for small businesses to offer plans. Today there are companies where in two clicks, an employer can sign up, and in two more clicks, an employee can sign up. And so, technology, I think, is going to help. there's some policy that's helping, in a policy called Secure 2. 0. There are tax credits available to businesses to try to encourage them to offer the plans. And then finally, some states have gotten involved. I think it's about 12 states have said if you work in this state, the company needs to provide a plan.
So, we've got a whole bunch of different things working to try to increase the number of people, in the United States who have access, because there is no, federal requirement that a company provide these benefits.
Oscar Pulido: I'm almost thinking if a company has a gym in their building, you probably get more of the employees that exercise versus if a company doesn't. and therefore, the statistic around 15 to 20 times. more likely to save if there's a workplace plan. it makes sense. It's the people who don't have access to the workplace plan are also busy, and therefore, if it requires extra work for them to find how to do it, it's going to be more challenging.
Anne Ackerley: For sure.
Oscar Pulido:That 57 million, those people who don't have access to that workplace plan, talk a little bit more about that. I think there's also some demographics, challenges in, in, in terms of what we see, access to retirement, the retirement outcomes that we see among different genders and demographics that I know you've done some work on that is, is interesting to touch on.
Anne Ackerley: The who doesn't have access are, people who tend to work in, certain sectors, the retail sector, maybe the hospitality sector.
I'd also say, gig workers don't. People who work for smaller businesses often don't. this might be surprising, there's 600,000 401k plans in the United States, but there's 6 million employers who have more than one employee.
So, there's a lot of plans, but then there's a lot of companies that don't offer it. And women and people of color disproportionately are affected by the lack of access. It's the sectors they work in. It might be part time workers, particularly for women. Often part time workers are not eligible to participate in plans. And the ultimate impact on retirement savings if we look at women, what we find is that women's balances at retirement are often 30 percent less than men's. This is in part due to access; they often don't have access. it's also due to the gender pay gap, the fact that women make 84 cents on the dollar. even if they're saving the same amount as men.
It's less amount of money, and that less amount of money compounds over time. Women are often, I think they provide almost, 80 percent of caregiving in the United States, whether that's childcare or elder care, and are often in and out of the workplace, which, again, impacts, their ability to save.
And for women of color, these numbers are even far, far greater. And again, I think the impact, is pretty devastating on people who don’t have access. and again, particularly women and people of color.
Oscar Pulido: So, this is a topic that I imagine we're going to be talking about for some time, but I get the sense that there's a lot of positive trends in the retirement space, particularly, I keep coming back to the person who's busy and how the ecosystem around them is developing to try and put in some good behaviors. There's still those 57 million Americans, though, that lack access that we need to help. we will probably have you on more than a few more times, Anne, to hear about how we're trying to close that gap. I want to thank you, though, for joining us today on the Bid.
Anne Ackerley: Thank you so much for having me.
if you've enjoyed today's episode, check out How to Solve the Emergency Savings Crisis, where I speak to Claire Chamberlain, BlackRock's Global Head of Social Impact, about what both the private and public sector is doing and what more still needs to be done to help resolve this crisis. Subscribe to The Bid wherever you get your podcasts.
<<THEME MUSIC>>
<<SPOKEN DISCLOSURES>>
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures
MKTGSH1023U/M-3146522
Retirement is a journey that's not only personal, but also profoundly influenced by external factors. Anne Ackerley, head of BlackRock's Retirement Group joins host Oscar Pulido to help us consider the current market conditions from a retirement lens and explains the five major forces that are shaping the retirement outlook.
Visit our insights hub to read more from BlackRock’s thought leaders' perspectives on investment strategies, artificial intelligence, retirement, and other market topics.
As a global investment manager and fiduciary to our clients, our purpose at BlackRock is to help everyone experience financial well-being. Since 1999, we've been a leading provider of financial technology, and our clients turn to us for the solutions they need when planning for their most important goals.
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