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MARY-CATHERINE LADER: So, Rob, as the President and a founder of BlackRock and a veteran of this industry for several decades, how has this crisis compared to other crises in your career?
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MARY-CATHERINE LADER: And speaking of financial futures, for those who are saving for retirement and particularly if they're closer to retirement, this is a really scary time. There's been so much market volatility, job loss as you mentioned, health at risk, and you recently wrote a letter to retirement savers in response to those concerns and specifically the coronavirus. What is the most important thing for retirement savers to know right now, Rob?
ROB KAPITO: Well, this has been something that's been brewing for quite a long time. We have an aging population across the globe and one of the things that we have noticed is that people are living longer, and they haven't saved enough for the future. And now with the pandemic, interest rates have come down to all-time lows. The expectation is that they will stay low for longer and whatever the solution to the pandemic is, we all know that it's going to take longer. And it's going to make it harder for people to be able to save and also invest at returns that are going to enable them to retire in dignity. So, this is an issue that we've been very focused on and trying hard to create awareness of the issue and solutions for retirees.
ANNE ACKERLEY: One of the big changes, I think from maybe prior crises particularly with respect to people who were saving in their 401(k) is there have been a lot of changes toward people getting into the right kind of investments, into those diversified, age-based asset allocated investments, widely known as target dates. A target date fund is really an all-in-one solution. I don't want to say totally set it and forget it, but to some extent you say when you want to retire and so long as you're investing, as you age it makes the right asset allocation choices for you. So, when you're young and you're a long way away from retirement, you're probably largely in equity in a target date. And as you get closer to retirement, we start to take risk off the table: more bonds, less equity. And so, we're taking risk off because particularly as you get right up close to retirement, if there is some sort of market downturn, you wouldn't want to be in all equities. I know particularly in your letter you were talking about if somebody was in that kind of vehicle, if they could at all, understanding that these were very hard times, to try to stay the course. And if they could, chances are as the market does start to rebound and it's already showing some signs of that, they wouldn't subject themselves to even further losses by not being able to get that rebound.
ROB KAPITO: Well, it's hard not to be frustrated when you see and hear the volatility in the marketplace, and you want to take action either to protect your principal or to make extra returns. And you know, we coined a saying that we think it's more important to have time in the market than timing the market.
MARY-CATHERINE LADER: Speaking of timing, Anne, we do these retirement surveys on a range of different retirement-related issues every year. We did one in January of this year before this crisis, and then we did one again after in the wake of it. How are the answers and responses that you saw different given the market environment right now?
MARY-CATHERINE LADER: And so, when it comes to managing and saving amid the crisis, what were retirement savers most concerned about? If their sense of their own standing was kind of the same, surely some things had changed given how much markets changed.
ANNE ACKERLEY: And whether they were going to be able to weather this downturn. And again, there's been a lot of change in terms of what people used to do and what they invest in now, and there's been a lot of education. So, while they were concerned, in fact we saw less than one percent of people trading in and out of their investments within a 401(k) during this crisis. So, people are hearing and if they can they're staying the course.
MARY-CATHERINE LADER: That's interesting, and as you mentioned, well before the coronavirus we've talked a lot about the retirement crisis. About the nest egg, even without the sort of context that we live in right now, not being enough for many people. How have your views on the retirement crisis, Rob, perhaps evolved in this environment?
ANNE ACKERLEY: Coming out of the survey, one thing that we saw that didn't change really was this sense of one of the biggest concerns is, people have, they're afraid of running out of their money. And pre- and post-crisis, you know, over 80 percent of the people in our survey said they want help from their employers in figuring out if they have enough money. And they say they not only want their employers to help them get kind of to retirement, but through retirement in terms of the types of things that are available to them in their 401(k). And I think we as an industry will have a chance to reevaluate the systems again and say, where do we need to strengthen, and I think one of the key areas will be around helping people with this notion of are they going to run out of money? How can they generate income? And as Rob said, you know, needing to be thinking of solutions and innovations around that piece of it.
ROB KAPITO: The other part of education that's important is there is some notion that people can retire on social security. And social security was not meant as a vehicle that you can retire on solely. It was meant to supplement the income that you have. So, you do have to save. And how many times have you heard members of your family say you need to save for a rainy day, or save for an emergency? All of these things that your parents and grandparents told you are true. I think you also have to use your longevity as a benefit. So, the one point that I want to make is saving for retirement is not for the older generation; it's for the younger generation. The earlier you start, the more that you will be able to accumulate and the better a situation you will be in by retirement. So, even for kids coming out of college today, the first thing that you should do is get invested in a 401(k) at your company, or start one, or start a savings and retirement plan, because the earlier you do the better you are going to be when it becomes time to retire.
MARY-CATHERINE LADER: You mentioned, Rob, in the topic of emergency savings how thin that barrier is for some people to start saving just $200 extra a month. Surely there, I mean, there's a lot of behavioral research around this, but are there innovations that are starting to work? That are starting to actually change behavior.
ANNE ACKERLEY: I think there will be even more focus from the industry on short-term savings and long-term savings and helping people build up that short-term emergency fund, so that they can protect their long-term savings. And one of the things we've seen in this crisis and look, this has been an incredibly difficult time for people, particularly for people who have lost their jobs, needing to take money out of the retirement account. And in fact, surveys have said that upwards of 50 percent of people who have lost their jobs may need to tap into their retirement savings. And in fact, the CARES Act which was passed and again provided lots of benefits to people really in need has allowed people to take money out of the 401(k), up to $100,000 with no penalties and to pay taxes over time. And, look, we're supportive of that when people need the money, but really post this, as an industry we've got to focus on having those short-term accounts so that we can protect that long-term account. Because once people take money out of their retirement account, they tend not to put it back in. And it may not seem like taking out a lot but it's exactly what Rob said about the compounding. You take money out and you lose the compounding for the rest of your life. And so, I think we'll see continued innovation in this area, particularly maybe with technology and how can we use technology to help people save short-term and kind of once they've filled up that bucket, start filling up their long-term bucket. And I think that'll be a really important part for employers in the industry to play.
ROB KAPITO: This is also not an issue for low-income or minimum wage people or middle-income or high-income. This really affects everyone, because most people get used to a certain style of living, and they have figured out from the money that comes in and the money that goes out that they can maintain that lifestyle. And now when you go into a period of time when there is no money coming in, what is the lifestyle that you are able to afford going forward? There's a rude awakening to people. And so, when we're going to go into a period where 20 million people are going to be out of work, you're going to see your neighbor who didn't plan, who didn't save, and when you watch that it's going to be very difficult and very frustrating and it's going to create an environment which could go one or two ways. It's going to increase peoples' awareness that they should have been saving more, but at the same time they're going to try to maintain the same way of living that they had in the past and therefore they may tap into their retirement. And they know it's the wrong thing to do but they want to maintain the lifestyle that they have. And I think our message is that you really have to think about this long and hard because it's probably better to cut back the lifestyle a bit so that you don't have to do it in the future when you know that there's not going to be income coming in. So, this is why we do a lot of work with individuals and 401(k) plans and companies to make this education available to people so that they know what can happen before they get into that situation, so then they can take the proper measures that are going to help their future and not hurt their future.
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