When I was growing up, the U.S. was launching the Great Society, which sought to summon the resources of government to wipe out poverty. Today, the generation that came of age with the Great Society is headed for retirement and giving you a Grey Society-where we will need to summon up even greater resources just to meet their needs.
About one in every four Americans who is 65 today will live past 90. One in 10 will live past 95. And nearly one-third of babies born two years ago will live to 100. Longer lives-that's got to be good news, right? Well, of course it is. But this Grey Society is a very expensive blessing.
The bill for the Grey Society is already coming due and overloading public budgets. Social Security and Medicare payments have exceeded revenues for years now, helping drive up deficits and debt and crowding out other spending.
The Grey Society is creating a drag on markets and the economy. Here in the U.S., a recent paper by two noted economists argues that an aging workforce is one reason the current recovery has been so slow and that jobless recoveries will now be the norm.
So the Grey Society is real and it is now. And no one has done enough to get ready. Governments aren't ready. The President's budget plan projects that Social Security and Medicare outlays will both rise more than 70% by 2023-it's unsustainable. State and local government pensions are underfunded by nearly a trillion dollars.
Companies aren't ready. The top 100 corporate pension plans are nearly half a trillion dollars underfunded. And individuals aren't ready. According to the Employee Benefits Research Institute, only two thirds of workers have saved anything for retirement, and most workers have saved less than $25,000.
So we're not ready for the Grey Society and the question is why? The answer is that we have let all three legs of the traditional retirement "stool"-Social Security, pensions and personal savings -get rickety.
Retirees now depend on Social Security for 70% of their income but Social Security was never intended to do the job alone-and it's a system that was established for different demographics.
When Social Security was launched in 1935, a 21-year-old male had about a 50-50 chance of living to 65 and collecting benefits. In 1960, five workers were paying into the system for every retiree. Now, it's three workers. In 2035, it will be just two.
The second leg of the traditional retirement stool was so-called defined benefit pensions. But over the past 30 years, we've had a massive shift away from defined benefit pension plans in the private sector. Employers found they simply couldn't afford to support the liabilities created as Baby Boomers aged and their liabilities rose.
Companies responded by freezing pension plans and shifting the retirement risk and burden to individual employees through so-called defined contribution plans such as 401(k)s, where workers save for their own retirement.
As of 2011, only about half of private-sector workers were covered by an employer-sponsored retirement plan of any kind-and less than 40% participated. And even where employers offer plans, less than 7% of eligible employees maxed out their 401(k)s in 2010 despite the benefits to doing so.
Which brings us to the third leg of our retirement system, private savings, where too many investors are simply not equipped for success. In a recent BlackRock survey, more than half of investors were worried about outliving their savings, but at the same time nearly three of four said it was more important to keep the money that they have now safe, than to try to generate the returns they'll need for the future.
So why aren't people taking the steps needed to plan for their retirement? Part of the answer is investor psychology. Investors feel more pain when they lose money than pleasure when they gain. So they often underinvest or do nothing at all when left to their own devices.
Investors also don't take a long-term view. They are too concerned about all the noise out there, all the ups and downs in the markets. After all, just last month, a hoax tweet from a hacker sent the Dow plunging 145 points in an instant. And we live in a world of 9,000 tweets a second.
So the question is what do we do about it? First, employers need to step up-in every way that can help workers achieve a secure retirement. More employers need to offer plans, auto-enroll all employees, provide matching funds and educate employees on the absolute necessity of maxing out their plans.
Second, the asset management industry-including my company, BlackRock-needs to do a better job as well. As an industry, we need to measure our performance not against benchmarks but against investors' objectives or liabilities. That means much less of a focus on short-term sales and products-and more on investors' long-term needs.
We cannot provide absolute certainty -that's never an option with any investment that carries a measure of risk. But we must do a much better job of accompanying savers on their life journeys with outcome-oriented solutions that help them understand how to stay on course-with target date funds, target risk funds and multi-asset solutions made for today's world and tomorrow's goals.
And we need to help investors look beyond the headlines-recognizing that successful investing is not about timing the market-but about time in the market.