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Longevity is killing us: BlackRock’s Larry Fink

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Longevity may be a blessing for aging Americans, but it’s creating a “systemic crisis” that U.S. policymakers have to solve, BlackRock Chairman and CEO Laurence Fink warned Tuesday during a talk at the New York University Stern School of Business.

The chief of the world’s biggest asset management firm called on government and business leaders to recognize that Americans are woefully unprepared for increasing longevity, and make the retirement funding crisis a national priority.

“Longevity is the defining challenge of our age,” said Fink, adding that one in four 65-year-old Americans today is expected to live until 90. He said the traditional mix of retirement funding from Social Security, pensions and personal savings was in the grip of “a systemic crisis that is threatening not only retirement systems but also our economic futures.”

The same day that Fink spoke at NYU Stern, BlackRock (BLK) released a new “Investor Pulse” survey that reveals that while investors are generally confident about their investing future, they worry that they won’t be able to manage the financial realities of longer retirements.

Sixty-two percent of investors polled also said they were concerned about having enough income from investments to live comfortably in retirement, and 54 percent agreed with the statement “I’m worried about outliving my savings.” In addition, despite their need for income, 73 percent of investors agreed that “keeping my money safe is more important to me than trying to generate returns.”

‘Increased longevity is a blessing, but it’s an expensive one’

The BlackRock survey conducted by the independent researcher GfK, which polled 451 investors with investable assets of $50,000 or more in April, also indicates that many investors are not looking closely at investment options that could make a big difference in achieving a financially secure retirement:

  • More than half of investors, or 56 percent, said that identifying the bond investments that are right for them would not be a focus at all over the next year;
  • Only 20 percent said that identifying better income-generating investments would be a major focus for them over the next year;
  • Four in 10 said they would consider investing in new strategies and different parts of the world;
  • Just 46 percent said they were thinking about increasing their focus on dividend-paying equities.

“People are living longer than ever before, dramatically altering the financial challenges of retirement,” said BlackRock President Rob Kapito in a statement. “Increased longevity is a blessing, but it’s an expensive one because that translates into the need for a bigger retirement nest egg and access to secure, retirement-long income. As our survey suggests, many Americans simply won’t have the money they need to enjoy their longer lives if they don’t start investing differently.”

In his NYU Stern talk, Fink said the old rules of investing that applied to pension plans and traditional government bonds won’t work anymore to help fund retirement obligations.

“That worked for 30 years of falling inflation and interest rates and 8 percent returns on Treasuries,” he said. “But it doesn’t work today when the 10-year Treasury yields less than 2 percent. And the very real risk is that people overallocating to traditional bond funds are going to lose money when interest rates rise.”

Three strategies for advisors to consider for client portfolios

The usual asset allocation of 60 percent equities/40 percent fixed income, with an increasing share of fixed income the closer a person gets to retirement, is outmoded, Fink added.

“As an industry, we need to measure our performance not against benchmarks, but against investors’ objectives or liabilities,” he said. “Investors don’t care if a fund holds mid-cap stocks or Mexican government debt. Investors want products that will provide long-term outcomes to help buy a house, send a kid to college or fund a decent retirement.”

For financial professionals, BlackRock on its website offers three strategies for advisors to consider for their clients’ investor portfolios. They involve:

  1. Allocating to flexible, core bond alternatives;
  2. Increasing exposure to credit sectors
  3. Implementing long/short strategies.

Beyond individual portfolios, Fink called for a comprehensive solution that, in addition to Social Security, includes some form of mandatory retirement savings, similar to Australia’s superannuation system or the new National Employment Savings Trust in the U.K. He also said that corporate America had a “moral obligation to help employees prepare for retirement” and urged more employers to offer retirement plans, provide matching funds, auto-enroll all employees and “educate employees on the absolute necessity of maxing out their plans.”

Read Most Middle-Income Americans Not Prepared to Pay for Health Crisis at AdvisorOne.