Rethinking retirement
Trish Oakley
April 2024
Many in the investment community look out for Larry Fink’s annual chairman’s letter to investors. At 11,000 odd words it’s not a short read, but in my experience, it's a thought provoking one. You can read the letter here.
Fink is the CEO of BlackRock investments, the largest asset manager in the world. According to the letter, more than half of the money BlackRock manages is for retirement and by numbers, that's for some 35 million Americans alone. That, in my opinion, makes him qualified to reflect and share a view.
And reflecting he has been, through the eyes of his own parent’s retirement. It tends to happen as we get older and at 71, it probably feels more pressing for Fink. In his words, they enjoyed “a secure, well-earned retirement”. What is evident from Fink’s musings is that saving for, and enjoying retirement is much harder today than it was 30 years ago and it will be harder again 30 years from now.
No wonder he picked up the pen. Alongside retirement, his second call for capital markets to address is that of infrastructure. Fink has been on a roadie, but not the usual jaunt to the beach or bach. On his roadie some 17 odd countries were ticked off as he chatted with people and policy makers along the way about how to unlock prosperity for their people. There is no doubt that the world needs bright, shiny and new infrastructure as we tackle the challenges of the 21st century (these include the realities of digitised economies and decarbonisation efforts). With the ink barely dry on his letter the collapse of the Baltimore bridge provided a tragic reminder of the need for enduring infrastructure.
Here in New Zealand, capital markets and KiwiSaver’s role are topics for another day as we wait to see what direction Minister Bayly wants to take. For now, Fink has some obvious yet useful reminders for us about retirement.
First the unavoidable reality - we are all getting older. The good news is that we are living longer too. Modern medicine coupled with education and the ability to make lifestyle-enhancing choices means the card from the King celebrating your centenary is not necessarily a pipe dream afforded to the few. Indeed globally, the rise of the elderly is a demographic phenomenon thanks to the post war years. Fink notes that “by the mid-century mark, one-in-six people globally will be over the age of 65, up from one-in-11 in 2019”. It is great that we are living longer and generally enjoying more active lives. It does mean however that you may be stretching those retirement pennies over say 35 years instead of perhaps over 20 years that was once the reality. That is a problem to tackle and Fink looks at retirement savings through three lenses:
- Someone currently working.
- Someone already retired.
- How it looks for us as a whole.
In unpacking these themes he considers the impacts of demographics on retirement systems and touches on some key questions, including one of the most challenging; affordability of state pensions linked to the age at which we should retire. Deeply held personal views abound on this one depending on what age we are but here in New Zealand we are fortunate to have KiwiSaver as an automatic deduction encouraging us every pay day to make those potential 35 years as secure as they can be. More is to be done in this space - 3% employee plus 3% employer contributions are unlikely to meet the total need for New Zealanders but it is start that should not be taken for granted. Recent research from Te Ara Ahunga Ora (Retirement Commission) shows that 37% are contributing more than the 3% employee contribution. That gives me some confidence that we Kiwis are reflecting on our futures and taking action. A timely reminder will appear in your inbox or mail tray soon too. This comes in the form of your Annual Member Statement giving you an estimation of what you are on track to receive at age 65 as either a lump sum or a weekly amount until age 90. Read the two numbers carefully. Ask yourself if you think you will work a little after 65 enabling you save more or draw upon your accumulated savings later. Your future self will be grateful for you doing a little math now.
And with that math done, move onto the exciting part, a plan for the numbers. Fink observed that a 2018 survey showed that nearly two decades into retirement, the average investor still had 80% of their pre-retirement money saved. Wow! "Youth is wasted on the young and money on the old" may just be true if that data extrapolates out from the sample. There can be a myriad of reasons why we don’t spend in retirement but let’s not make fear of running out of funds one of them.
Fear is the final part in Fink’s comments on retirement. He sees this as arguably one of the biggest barriers to investing but the flip side of fear is, of course, hope. We don’t invest for the future if we are not hopeful for all that it can yield. We don’t squirrel our hard earned savings away in a tin buried deep in the cellar, rather we invest in markets and ride the rises and falls that come with market cycles over time. Our hope for the future and need for potentially 35 years of capital plays out in our investment decisions accordingly. That is as important for my generation as it is for yours and those still to come.
Fink’s parents worked hard, invested wisely and taught Larry the power of investing early. But as his letter so eloquently reminds us, it is never too late to rethink retirement - our own, our families or even a nation’s. Let not all society’s energy be put into creating longer lives - let’s make sure some of our effort also goes into helping everyone enjoy those longer lives too by ensuring a secure retirement. Start by rethinking your own retirement today.
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