Larry Fink, CEO of BlackRock, recently warned investors in his annual Chairman’s Letter about a global “Silent Crisis” that is soon to impact retirees. So why haven’t you heard about it in the news? Fink explained that the looming crisis, “doesn’t make headlines or attract attention because it’s not immediate. It’s not this year’s — or even next year’s — problem. But it is a crisis. And the longer we delay the conversation about it, the larger the crisis grows.”
So, what’s going on? And more importantly, what can the individual retiree, or those soon to retire, do about it?
A number of trends all appear to be combining, which will create a “perfect storm” for certain parts of the economy. For one thing, people are living longer. Normally we consider that a good thing, but of course it means you will be living on your retirement savings for longer.
The second factor involves a falling birth rate. A birth rate of 2.1 (babies per woman) is needed to ensure population replacement (keeping population numbers stable). But in the US, the birth rate has fallen to 1.7 in recent years. Europe’s rate is lower, at 1.5, and in China the rate has bottomed out at 1.2. That means fewer workers in the future, which translates to fewer people paying taxes that support programs like Social Security.
And over the years, many of us have failed to prioritize retirement savings. Whether due to economic conditions or personal preference, 25 percent of American workers have no retirement savings at all. Of those who do, the average amount saved is just $65,000.
And even when they do manage to save, many people dip into retirement savings early due to emergencies. Balances drop dramatically when this happens, and it’s difficult to make up for lost time later.
So, what does Fink recommend? He reminds readers that rather than simply focusing on saving money, they should actively invest to create growth.
If you’re worried about your savings rate, or more importantly, how to grow your nest egg so that you can retire with more confidence, give us a call. We should review your strategy and determine whether any changes should be made to your retirement plan.