The CEO of the world’s largest asset manager told CNBC on Wednesday he was worried about a “silent retirement crisis,” citing global monetary policies that are discouraging savers.
“Undoubtedly, as central banks keep rates low or even negative in Europe, savers are being criticized,” BlackRock co-founder Larry Fink said on “Squawk Box”. He added: “Asset owners are the main beneficiaries of monetary policy, and that’s why I think a year ago, two years ago, I said we needed more. fiscal stimulus and perhaps less monetary stimulus. “
Increasingly, Fink said he believed people were starting to invest money in the stock market, instead of keeping it in low risk investments or savings accounts.
While the Federal Reserve’s interest policy is directly tied to short-term borrowing between banks, it still has an impact on savings and borrowing rates for ordinary Americans. Currently, the federal funds rate is pegged near zero as the central bank tries to support an economic recovery from the Covid pandemic.
The effective federal funds rate was below 2% for much of the post-financial crisis period of 2008, with the exception of October 2018 to September 2019, according to historical data compiled by the Federal Reserve of St. Louis.
“A lot of savers are now more confused, and I think some of them are finally getting into stocks and other asset classes,” said Fink, who noted he had long advocated for exposure. 100% in stocks, not that he “predicted where the money would be.”
The traditional allocation for investor portfolios has been 60% in stocks and 40% in bonds, often adjusted according to the distance or proximity of the retired investors.
In 2018, Fink told CNBC that at the time, most people saving for retirement should have most of their portfolios in stocks rather than bonds, even those up to 50 years old.
BlackRock benefits people who invest in all kinds of investment vehicles, including stocks and bonds. Fink’s company in the second quarter saw its assets under management increase 30% year-on-year to nearly $ 9.5 trillion.
“We’re going to have to face what I would call the silent retirement crisis,” Fink said. “People are going to have to, unfortunately, whether they like it or not, they may have to work longer because they are not making the same returns on their savings.”
The standard retirement age in the United States is expected to increase, as Fink suggested.
In addition, the Social Security Administration indicates that the full retirement age – when a person can receive the full amount of their benefits – is 67 for people born in 1960 and after.
According to the Fed U.S. Household Economic Well-Being Report 2020, about 75% of non-retired U.S. adults had saved money for retirement. About 25% “did not have”, according to the report. This is roughly the same percentage breakdown as found in the 2019 report.
“While most non-retired adults had some type of retirement savings, only 36% of non-retirees believed their retirement savings were on track,” the Fed wrote in its 2020 report.
The stock market, after a major plunge in February and March last year, pulled off a major rally, in part thanks to support from the Fed. The central bank cut interest rates to near zero and started buying assets of at least $ 120 million per month. Fink’s BlackRock was hired by the Fed to help run the bond buying program.
Congress has also authorized billions of dollars in fiscal stimulus to help the beleaguered economy and the millions of Americans who have lost their jobs.
The S&P 500 hit a new intraday high on Wednesday. The broad equity index is up about 100% from its pandemic-era low on March 23, 2020.
“If you had a balanced portfolio, over the past year you’ve done pretty well,” Fink admitted Wednesday morning, before the market opened. “You may be hurting with your bond or cash allocation, but your equity allocation has worked pretty well for you, and for those who own homes, they have obviously been a big beneficiary of rising asset prices.”