BlackRock's Larry Fink on the Retirement Savings Crisis

The founder of the world’s largest asset manager talks about solving the retirement crisis, private chats with government officials, and his personal investment portfolio

Photograph by Daniel Shea for Bloomberg Businessweek

You’ve called the national savings level a crisis. If you could get piped onto the TV screen of every American home tonight, what is the single scariest thing you could say to people to get their attention?
So if I’m speaking to those who are, let’s say, 45 and older, I would say if you don’t start thinking about how longevity is going to change your future, you most probably will have to work much longer than you ever dreamed of doing. Or you’d better start becoming very nice and very good to your children, because most probably you’ll be living with them.

One thing I’m astounded about—that people still talk like it’s natural to consider retirement at 62 or 65 today. And yet, you know, in the last 20 years, longevity has increased by 10-plus years. But the big issue that I can’t comprehend is the narrative out of Washington. Every time you talk about entitlements, you talk about taking away, and it becomes a very emotional issue. And when I spend time in Washington, or when I have somebody coming up to see me—a senator or congressman or somebody from the administration—I tell them, “You guys—your narrative’s all wrong. The narrative is about retirement.”

Keep in mind, when retirement was established in this country, as a theme, you retired at 60 or 62, and you had this five-year period of time.

Until you died.
Until you died. Now it’s not uncommon to know a lot of men and women who are in their mid-90s. We have such a great workforce—and a healthy one. And so working to 67, 68, in my mind, is a blessing. So you decide, “I’m going to live longer, so why should I allow one-third of my life to be so unproductive?”

Are fear and alarm the best way to fix this problem?
No. It’s talking about the blessing of longevity. I mean, I’m surprised at how much we spend and read about having better health, whether it’s more exercise, and whether it’s taking omega-3 pills, eating more healthy, having preventive health care.

How is your health, by the way?
My health’s really darn—really well.

You look tanned.
I do work outside. I had my grandkids over this weekend, so I was able to spend time with them at the pool.

It sounds as if you don’t actually think we’ll face the same demographic handcuffs that Japan has faced.
Japan’s demographics are so much related, also, to gender bias. Women don’t work. If Shinzo Abe reforms and gets the society to have women in the workforce, Japan will have another burst of energy.

What would you say is the biggest enemy of adequate retirement savings right now?
One of the key elements of human behavior is, humans have a greater fear of loss than enjoyment of success. All the academic studies will show you that the fear of loss of capital is far greater than the enjoyment of gains. You have seen most individual investors underinvest, because they’re so frightened of losing money.

Does the U.S. need a mandatory retirement savings system?
I believe it’s essential that we look at that as an option.

We’re looking at it as an option. Should we have one?
I believe definitely so. The question is, what do we do with Social Security? Right now we’re contributing 12.5 percent, between what your company’s contributing and what you’re contributing. Social Security is an insurance policy. It’s a terrible investment vehicle. Social Security has some great benefits. But it was never meant to be a savings plan. So we need to have a national debate. Should this 12.5 percent that we’re contributing all go into a Social Security pool, or should half go into a mandatory savings plan? I’m not here to debate it. I’m here to introduce these ideas as possibilities.

During certain periods of his tenure, Tim Geithner spoke with you more than almost any other person. When the secretary of the Treasury calls, what do you talk about?
Generally, when somebody from government talks to me, they ask about retirement and my views of it. They may want to talk to me about Fannie Mae and Freddie Mac. They may want to talk to me about China or France or Germany. We manage more retirement money than any firm in the world. We manage more insurance company assets and sovereign wealth funds and on and on and on.

So we have a point of view. What I will say is I understand the propriety of the calls, whether it’s the secretary of the Treasury or a governor of a central bank or a finance minister for another country. It is generally a privilege to have that relationship. You have to understand, your conversations are one directional. It’s not for me to ask them, “What’s going on in the economy?” or, “What do you see?” It’s for them to learn some information from me. And over time with many of these men and women, you develop a personal relationship, too. So sometimes it can be as simple as, “How was your weekend?”

In terms of influencing what happens in Washington, there are very few spokesmen for Wall Street. It was Jamie Dimon for a while until the London Whale stuff. Is that a role you would want to take on?
We are not Wall Street. I left Wall Street to form an investment management company in 1988. Our business model is 100 percent different from Wall Street; 100 percent of my revenue is fiduciary. I don’t have a balance sheet. And this is why we are hired by many governments—and obviously not just the U.S. So we just got rehired in Greece, and we do Ireland and Cyprus. I do believe the voices of Wall Street are still heard. I don’t think Jamie Dimon’s voice is diminished at all, by the way. I think the negativity from the press tried to imply that.

You manage $4 trillion worth of assets, but you’re not Wall Street?
What Wall Street is, they’re market makers. Wall Street’s business model is making money on velocity of money. They’re a click industry. That’s what Wall Street is. They make a lot of money when there’s a lot of turnover. And they make a lot of money when that velocity is fast. The investment management business, we don’t make money on clicks. Actually, our returns degrade when we buy and sell a lot because we pay commissions to Wall Street. So our job is long periods of holding. But I happen to be a New York City company, and so we’re banded together, which is kind of inappropriate.

Does it bother you?
Yeah. I have to admit, that does bother me. I am responsible for managing more schoolteachers’ and firemen’s money than anybody in the world. That’s an enormous responsibility.

You seem to enjoy taking on different issues—money-market reform, mandatory retirement savings.
With our scale comes the responsibility of making sure that there’s voices for protection of investors. We’re active in all the markets. And so when the rules change or there’s a need to discuss something, whether it’s money-market funds or retirement or the Dodd-Frank rules and the impact of derivatives and exchange trade and stuff, we have a responsibility of making sure we have a voice. We won’t be an activist for a short-term result. A hedge fund that is an activist is looking for a short outcome that may be harmful for the long term.

BlackRock is less of a household name than Vanguard or Fidelity. Would you like to change that?
Fidelity and Vanguard are great firms. They’ve been consistent spokesmen—spokesfirms—for retail for 50 years, approximately, each. BlackRock has been entering the retail market in a solid way for the last five years. I have a lot to learn and a lot to do. But I do believe we have a lot of abilities. We could be a great fiduciary for individuals over a long cycle.

My long-term goal is to build a strong brand that represents those merits and to be a brand consistent with Vanguard and Fidelity. There’s certainly room for another.

Are we at the end of our time?
I’ve got five more minutes, because I’ve got somebody waiting for a bit. I don’t even know—oh, my CFO. He can wait.

You haven’t been shy about saying that people should be 100 percent in equities.
I did that for shock value. I am 100 percent in equities personally. And I believe in that. And I did that in October 2011, and so I think that worked out OK. The three-year return on equities is up 63 percent, and bonds are up 9.

Your quote at the time was, “If my accountant would let me, I would be 100 percent in equities.” It sounds as if you won that argument.
I’m in a lot of index funds. And I believe systematically we’re in a long-term rise—I wouldn’t call it a bull market, because, you know, I don’t use those terms. But I think we’re going to have equities outperforming bonds for many years to come.