The current state of retirement in the US is, in a word, bleak. A poll by the Employee Benefit Research Institute found that just 21% of respondents are “very confident in their ability to have enough money to live comfortably throughout retirement. “
About 90% of registered voters believe the US is experiencing a retirement crisis, according to BlackRock’s latest Rethinking Retirement report. The Federal Reserve says that one in four Americans has no retirement savings, and the Morningstar’s Center for Retirement and Policy Studies, has said that 45% of Americans will run out of money in retirement.
In the episode of Decoding Retirement, Robert “Bob” Powell and Anne Ackerly, BlackRock’s senior advisor on retirement, discuss the looming crisis, the role of stocks in retirement planning, and strategies for turning assets into income.
In the ‘Ask Bob’ segment, Powell breaks down the differences between subsidized and unsubsidized loans, and identifies and explains the key factors that impact your credit score.
Yahoo Finance’s Decoding Retirement is hosted by Robert Powell.
Find more episodes of Decoding Retirement at https://finance.yahoo.com/videos/series/decoding-retirement.
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This post was written by John Tejada.
Video Transcript
Welcome to Decoding Retirement where we go behind the scenes and behind the headlines to help you plan for and live better in retirement.
Hi, I’m your host Bob Powell.
And today I’m talking about a headline that’s been in the news for a long time and my guest is Anne Ackerley, senior advisor at Blackrock Ann.
Welcome.
Thank you for having me.
Oh, it’s a pleasure.
Um I, I’ve learned much about your career uh over the years uh as like you, I eat, breathe and sleep, all things retirement.
I do.
I’m looking forward to a fruitful discussion.
Uh But before we talk about the state of retirement, I, I want to do a little bit of table setting.
Uh the employee benefit Research Institute Retirement Confidence survey notes that just 21% of respondents are very confident in their ability to have enough money to live comfortably throughout retirement.
Um The work that you’ve done at the Aspen Institute suggests that there are more than 50 million Americans who live in or near a financial crisis.
And before we talk about Larry Fink, I want to mention that there are some people who don’t think there is a retirement crisis.
Andrew Biggs at the American Enterprise Institute says there is no retirement crisis, at least for most Americans.
But Larry Fink your boss over at Black Rock.
He in his annual uh letter to uh to folks noted that there are critical challenges, critical challenges that aren’t being discussed enough and need urgent focus that the traditional retirement system is facing new demographic realities, putting a secure and dignified retirement increasingly out of the reach for many people.
So what say you about the state of retirement?
Well, um Bob, I’m obviously likely to agree with Larry that there are some critical challenges that we need to face.
We just did a survey um a couple of weeks ago where we went out and we asked registered voters whether they thought there was a crisis and 90% of registered voters say that there is a crisis, a retirement crisis in the US.
And that is actually true.
Whether you look at Democrats, independents or Republicans, it’s really the same percentage.
And so I think we need to listen to people who are saying that they need help.
Um You’ve cited some statistics, I can just add a couple.
Uh The Federal Reserve says, you know, one out of four Americans has absolutely no retirement savings.
Uh Brookings Institute has said that 40% of people will outlive their savings.
So I’m not sure, um you know, that we need to get into, uh, you know, I know the, the, uh, stuff that people are saying.
Well, no, some people are doing well.
Yes.
Obviously there are some people in the United States that are very well prepared for retirement.
But I think we need to focus on the fact that there are a lot of people who are not well prepared and some of it’s because of the trends.
Right.
There are two, I think big trends that we probably need to think about.
One is people are living longer.
And so, you know, I mean, gosh, if you just look over the last century, right, we’ve added something like 30 years uh to people’s lives.
And so, you know, if you used to retire and live to 70 or 75 you know, people today might have a chance to live to 100 that’s a very different uh way of retiring.
And the other thing is we’ve had a big shift right from people who used to have pensions now, obviously not everybody, but many people had pensions.
And today you have a defined contribution system where people are on their own.
And so I think, uh what we’re seeing is there’s been these big shifts and people are asking for help and I think the industry has done some good things we have a lot more to do.
So you, you just reminded me that having um, that have the most depressing job in America, which is, you’re reminding me that we haven’t saved enough and that we’re going to live too long.
So thank you for that reminder.
But there are things you can do, there are things you can do.
So that leaves us, I guess to this notion that in, in his letter, Larry addressed, um the role that capital markets can play in helping uh people um address the not saving enough or living too long.
Um Right.
So he talks a lot about capital markets and obviously, I think getting people to save young and allowing the power of compounding over time is critically important.
And Larry talks a lot about, you know, young people being invested in the inequity markets and using the power of these markets to help us.
Um I think there are some other things that we would want to talk about and you mentioned one earlier on which is, you know, making sure that people have access to the tools that they need.
Um And I think that’s part of like using the capital markets.
So one thing I would just say is, um you know, 57 million Americans don’t have access to a workplace plan.
And yet we know that if you have access, you’re 15 to 20 times more likely to save for retirement.
I mean, we’re all busy, right?
If you make it easy and you take it out of my paycheck and I can put it in a plan at work, I’m probably gonna save, but we’ve got a lot of people, people who work for mostly small and medium sized businesses, which is a lot of this country and it’s actually almost half of the private sector don’t have access to these plans and it just makes it harder for them.
So, I think that’s one thing we could focus on.
Right.
I mean, Secure Act 2.0 when, uh, a little bit toward helping that in terms of giving small businesses credit to put in place a retirement plan.
Yeah, and I, I’m a big, you know, Secure 2.0 is gonna give them tax credits.
There have been big changes in technology that make it much easier for people, uh companies to have online access.
It can be a few clicks for the employer, a few clicks for the employee to actually get signed up for 401k plan.
So, you know, I think historically, companies have said they’re expensive and they’re hard to administer and things have happened to try to make it easier for, for businesses to offer these.
So that’s one thing.
Another thing just um when I think about access, I think about like access to simple investment solutions and what I would call out is, um, you know, we don’t need people to be investment experts to take advantage of the capital market, uh target date funds.
They have been really an amazing uh solution I think to people who don’t want to do it themselves.
So age based asset allocated, do it for me.
You know, put me in stocks when I’m young, put me in fewer stocks and more bonds when I get near retirement.
And I think that has helped, um, a lot of people save for retirement.
So you talked about target date funds and, and we talked about maybe how different younger generations need to save more.
Perhaps I look at it anecdotally and I think when I entered the workforce, there was no 401k plan, they were really just Ira S but as my Children enter the workforce, it’s almost impossible for them not to enroll in their 401k, they’re automatically enrolled and they’re automatically put into a qualified default investment alternative, typically a target date fund.
So sometimes I think for the younger workers who are entering the workforce, the uh the crises isn’t as great because they’re starting to say right from the get go.
Uh I, I agree.
I, if you work for a company that offers the plan and that’s gonna be a lot of large companies.
And so, you know, when I think about I, I too have a um adult Children, two adult Children, uh one is a musician and he’s historically had some nontraditional jobs.
Uh You know, he didn’t have the benefit of a 401k.
My daughter, more traditional jobs has, has the benefit.
So I think it’s a bit of a mixed bag um for young people depending on where they work but yes, if they’re at a company they’re automatically put into it, they’re put into the target date.
They might even be, um, a auto escalated, meaning every year the percentage of saving goes up.
So, I think they, you know, the industry has really worked hard to make it easier for a lot of these young people to save.
Yeah.
So you’ve also talked about this notion of thinking about retirement income, the moment you start saving for retirement and uh for retirement.
So what, what is that about?
I mean, it’s hard for a 20 year old to think about retirement income when they’ve got a 40 year window to save for retirement.
Yeah.
And we should acknowledge particularly for young people.
Um Yes, in some ways it’s been made easier, but they are facing, you know, they might have student debt, they might be beginning to have credit card debt.
You know, we’ve had rent and expenses.
So I don’t want to make it to say, oh, for, you know, Gen Z in the workforce, it’s all so easy.
Uh But there have been some great, uh, you know, innovations that have, um, come with it, you know, on income.
Uh, we do a survey every year.
It’s called Read on Retirement.
This is our ninth year of doing it.
We go out, out and talk to about 4000 people.
Um, and you know what we’ve heard on income is that 60% of everybody, we talked to is afraid of outliving their savings.
So, yes, actually the gen Z were the most afraid, which is kind of interesting, but maybe that’s because they’re going to live the longest, but every generation is very, very worried about this.
And so, um, I think where the industry needs to start thinking about is we’ve done some good things to help people save.
And now we need to focus on how we’re going to help them in retirement, how we’re going to make this pool of money that they’ve saved into kind of a paycheck that they can get every year for as long as they live.
And I would just want to say, um, you know, we’ve had the pleasure of being able to talk to Bill Sharp, the Nobel laureate who has actually called this the toughest nastiest problem in finance, right?
And, uh, because you don’t know how long you’re gonna live.
You don’t know what the markets are gonna do.
You may not know what your expenses are.
And yet in the United States, we kind of said, hey, everybody go figure this out on, you know, on your own.
And so I think most people do worry about outliving their savings.
Yeah, I always say that if you could tell me your date of death, I could build you the perfect retirement income plan, I think.
But I, I mean, we all could, right?
Because if I’m gonna live to 75 I know how to spend my money.
If I’m living to 100 I’m gonna need to spend it and invest it differently.
Right.
And it, and it also reminds me, uh, years ago, the social security agency used to have a break, even calculator on their website.
Uh Jason Fior, who at the time was the, I think the assistant administrator of Social Security uh told them to take it down because people were misusing it.
They were sort of using it as saying, I’m only going to live to 78.
So I’ll claim early.
Um We work a lot with Jason.
He’s terrific.
He’s done so much around uh income and social security.
But if I had a piece of advice, you know, to the extent that you can delaying your Social Security can really help you because if you take it at 62 that’s gonna be kind of your minimum payment.
And if you can wait to 70 it’s something like a 77% greater payment.
If you can wait that long.
Not to mention that if you’re the higher earning spouse, you’d be leaving behind a higher survivor’s benefit for the lower income.
Exactly.
Exactly.
So, you know, my history with Blackrock is that you’ve been a leader in this notion of turning assets into income.
I believe there was a tool called Corey.
At one point that you, it is still in existence.
It is all right.
So, you know, this whole, this this is troubling because people have been taught, I can I know how to say for retirement.
I don’t necessarily know how to turn that asset into income.
Uh You’ve been famous for including a annuity, an income annuity inside the target income funds or target date funds.
Tell us more about that and how people can sort of use it.
Sure.
So six years ago, um Larry Fink got a whole group of us together at Black Rock and he really challenged us and said, we need to do more particularly around this notion of helping people uh spend in retirement.
And one of the things he challenged us was, could we bring some of the benefits of defined benefit to the defined contribution world?
And as you’ve mentioned, there are these things called annuities, right?
It is guaranteed income, they exist, but they have a bad reputation.
I mean, I I, you know, I’m not an insurance company but, you know, people have thought they’re complicated.
Uh they can be expensive.
I don’t want to say all annuities, but people have typically not used them.
And I have to interrupt you for a second.
We have to take time to answer a reader question in a segment that we call as Bob.
And when we come back, we’ll talk more about longevity.
The reader asks, what is the difference between a subsidized and an unsubsidized federal loan?
The main difference between a subsidized and unsubsidized federal student loan is who pays the interest while the loan is outstanding with a subsidized loan.
The federal government pays the interest while the student is enrolled at least half time during deferment and during a grace period, this means that the amount borrowed as a freshman is the same amount that needs to be paid.
When the student graduates with an unsubsidized loan.
The student is responsible for paying all interest from the time the loan is dispersed until it is paid in full.
This means that the balance of the loan increases immediately and the student should consider making at least the monthly interest payments.
Welcome back to decoding retirement.
I’m talking to Anne Akerley from Blackrock and before the break, we were talking about income annuities inside target date funds and uh I interrupted you so feel free to pick up where you left, keep going.
Um So, you know, annuity, what we said at Blackrock was annuities exist, they’re guaranteed income.
What if we could help people get simple and affordable annuities within their 401k plan?
And that’s what we’ve been working on for the last six years.
We work with some insurance companies uh that were willing kind of to re invent annuities and make them simple and easy.
We’ve put it into a target date and so uh which people know and are using.
And so when you uh want to retire, if you’re in this solution that we have, um you have the option to take a portion of your assets and get guaranteed income, get a paycheck for life.
And we think that, uh, has brought some benefits of, you know, the traditional pension to the 401k space.
Right.
And when I think about income in retirement, there are some people that suggest that a very simple way to think about it is to match your guaranteed sources of income with your essential expenses.
And, and then that maybe your discretionary assets, uh, with your discretionary expenses or your risky assets with your discretionary expense.
And that’s exactly how we thought about it.
We said that, um, you know, based on everything we looked at, uh, if people had social security and if they took about 30% of their assets and inuits them that would probably be able to cover fixed expenses and then they could take the other 70% that they have within the 401k and invest that, um, you know, for what we call more flexible income.
Right.
So, uh, maybe you could also touch on a little bit of the history of income annuities being allowed inside these funds.
Uh, it, it, it took regulatory efforts, I think for this to be allowed.
Um, well, what would I’d say is that the, um, a secure and secure 2.0 are looking at this, right.
And what they, they gave some safe harbors to plan sponsors, you know, uh, appropriately we work in an industry.
This is people’s retirement money, we should be incredibly protective of it.
And um new things, you know, innovations are kind of hard to bring to the 401k space because we need to be really careful about what we do with people’s money.
So the um secure and secure 2.0 have said to employers, you know, if you want to put annuities into a 401k plan.
So long as you’ve used uh certain criteria for picking the insurance companies, you should be ok.
So it’s trying to encourage employers to really think about income and to include some form of income into the 401k plan.
Yeah, so when I think about uh retirement, I always think about the risk associated with it and that you need different tools to manage the different risks with longevity.
Um There are few other tools other than income anu that can at least manage and mitigate the risk of outliving your assets.
Um It may not ne necessarily manage or mitigate the risk of inflation per se, which is why you might need uh risky assets for that.
That’s exactly how we thought about it, right?
If you have an income annuity and you have some guaranteed income, right?
You’re building some security, some secure um certainty into however long you’re gonna live and then you uh use the remaining assets, right?
Have it invested in part in the market, important equities uh which should help you against inflation.
How do you, how do you recommend that people get their head around.
What is sometimes described as the annuity puzzle, right?
This notion of I’m giving peep someone money and I may not get it back if I die.
Uh before I before life expectancy, let’s say so the way we looked at it um is if somebody’s going to give up some money, we thought they would want to start getting payments immediately.
Right?
There are other annuities that you give up your money today and you may not be able to, to get it till you’re 85.
We said most people and I, I’ll include myself in this.
If I’m going to give you 30% of my assets, I want my payments to start today.
And then we have some features, not too many because we wanted to keep these simple that would give you some protections if you passed away uh earlier than uh, than you thought.
Right.
And, and a lot of times people think of um income annuities as investments.
I think of them as insurance in a, in a sense, in part because they’re offering you something called mortality credits.
And is that something that you educate people on or is there a need to educate them about mortality credits?
I think we more talk about just guaranteed income, right?
Certainty.
Um Interestingly in our read on retirement survey, 80% of people we talked to said that the thought that they might run out of money in retirement was causing the mental health issues today.
And 93% said if we could get some guaranteed income in our 401k, we would feel better, we would have less pressure, less stress.
And so I think some of this is just about telling people, you know, you can get some guaranteed income that will help you not outlive your savings.
And I think some of the recent research from people like Michael, I think and others have suggested that having guaranteed sources of income also enables you to spend more now in retirement 100%.
I mean, if, if you think about it, right.
It, that kind of makes sense if I know I’m going to get these checks, if I know I’m not going to be able to outlive my money, I might be feel better today about spending money.
Um There was a study that Ebrey did with Black Rock that showed, you know, 80% of people still had a lot of assets when they uh were 80 in retirement because people are holding back and, you know, they’re worried about medical expenses and other expenses and outliving their money.
And so, you know, I think having some form of secure income within the 401k could really help people uh feel less stress about it.
Well, I hope people take to heart the messages that you’ve delivered today.
But before we take a a AAA break and say goodbye for this, for this moment anyway, is, let’s have a little fun.
You’re passionate about retirement as I am, but you have some personal anecdotes to share with us.
Well, I would just tell you a story.
Um, when my, my mom was a high school teacher, she worked for 35 years, she worked extremely hard, you know, as one of five kids.
Um, when she retired, it was right about the same time I was going over to Black Rock and she got an annual report from the New York State uh teachers pension plan that indicated that Blackrock managed some of the money.
And so my mom would take the annual report circle where it’s at.
Blackrock was managing the money.
She put a little yellow sticky on it saying dear Ann, please take care of us.
Old teachers, love mom and she would mail it to me every year.
And I just, um, you know, as I started, uh at Black Rock, as I started in asset management and then as I ultimately became the head of retirement, it was a really good reminder to me that every penny we manage at Blackrock is somebody else’s money.
It’s somebody else’s hopes and dreams.
It’s somebody else’s retirement.
It was my mom’s, it was her friends, it was her teachers and she never let me forget it.
So, and before you go, what’s the actionable advice you have for folks, whether they’re young or old here?
Um So, well for young people, right?
If you can save, save early, save often, uh put it in a target date.
Um You know, I think that advice is good for, as you get older as well.
I would say for people getting close to retirement, uh, if you haven’t been able to save as much as you want, can you use your catch up contributions?
Um, I think that’s important.
We, we talked about, uh can you delay uh taking your social security benefits that can help you get more in, in retirement?
Uh And then I’d say, for everybody, ask your employer if they’re offering guaranteed income within the 401k, I think uh they need to know that people want it.
You know, I, for one last thing, John Chain over at Stanford talked about working two years longer as one way to improve the possibility of having retirement security.
Um when I’m not going to get into, you know, I think everybody should work as long as they want.
Uh some people never want to retire.
Some people will have jobs that they’re going to have to retire at a younger age.
I think our goal is everybody should be able to retire with dignity when they want.
And II, I can’t thank you enough for sharing your knowledge and wisdom with us.
Hopefully you’ll come back on the show in the future.
Maybe there’s another survey that you’ve done or maybe another product that you’ve introduced will come back and we’re always trying to make it better.
So I would love to come back up next.
We’ll answer another reader question in a segment that we call.
Ask Bob.
The reader’s question goes like this.
I have one credit card and I’m making debt payments on time every month.
Plus I’m making sure the amount owed is under 30% of my credit limit.
I understand that I might not be able to increase my credit score until the length of my credit history is longer.
Is that correct?
Well, I went to Christina Roman from Experian to answer this question and she said that making your payments on time and keeping your balances low are the two most important factors in determining your credit score.
However, commonly used scoring models like FICA and vantage score also take the length of your credit history into consideration.
A longer history generally demonstrates to lenders that you have experience managing credit responsibly since you only have one credit card.
Your credit history is relatively short, which can impact your score if you’ve got questions about money or retirement, email me at ask Bob at Yahoo Finance and we’ll do our best to answer your question on a future episode.
So that’s it for this week’s edition of Decoding Retirement.
With hope the information that you’ve learned today will help you plan for and live in retirement a little bit better today than yesterday.
This content was not intended to be financial advice and should not be used as a substitute for professional financial services.