My Solution to Larry Fink's Retirement Crisis

Larry Fink, CEO of Blackrock, officially the largest asset manager in the world, has used his annual letter this week to highlight what he calls a “silent crisis” when it comes to retirement. And I agree with him. In the last generation, we have removed the Defined Benefit safety net of retirement income from virtually all employees and left them on their own. Higher housing and healthcare costs combined with longer life expectancy equals a retirement that simply costs more than it used to. And the majority of people are totally unprepared for it.

This is one of the main reasons I chose to write my book, Plan for Happy, as this is such an important issue for everyone. So what can we do to help? If you’re reading this and you’re a client of mine, then you’re already doing the right thing so congratulations to you. But according to the FCA you are in the minority. 92%, yes 92% of UK adults have not received financial advice over the last 2 years.

My answer – education, education, education. An entire generation is sleep-walking into this retirement nightmare and nobody is doing anything about it. People need to understand that the only way, yes the only way, to generate above-inflation returns is to invest the funds in predominately equity-based investments. Now it doesn’t mean you must be 100% equity, but you should have at least some. Fink picks up this point:

In some countries people are actually over saving but under-investing. If they are keeping their money in the bank rather than investing in the market, they won’t generate the returns necessary to retire with dignity. In order to retire comfortably, people need to invest their savings over decades and take advantage of the long term returns delivered by the growth of the capital markets.

This is obviously far too big a topic to solve in one paragraph, but I want to make one suggestion. How can we create something that both educates and creates a positive interest in investing for the future? Here’s an idea for you. Feel free to pass this on to Jeremy Hunt or Rachel Reeves. Every UK baby born gets a ￡5,000 state retirement fund. The title is important as it helps people understand what it is for. The parents cannot touch the money – it is for the child – and held in an account with NS&I. That ￡5,000 is then invested in a global equity index tracker, and the child, who becomes an adult, cannot touch the funds until they are 60.

So what is ￡5,000 worth after 60 years growth at an average of 8%? Just over ￡506,000. Now yes, there will be inflation of course, and the cost of everything else will be much higher, but can you imagine a society where retirees today are basically given ￡500,000 from the age of 60? Oh, but what about the cost, say the naysayers? The UK spends ￡112.50 Billion on the state pension each year. This scheme (based on an average of 618,000 births each year) would cost ￡3.4 Billion per year. Basically 3% of what it costs to pay the state pension.

The other aspect of this is the education part. Everyone, and I mean everyone, in the UK will have a personal stake in the global economy. Everyone has an interest. There is nothing like watching the value of your asset go up and down to pique your interest into how it works and what is happening. By being involved, people should want to learn more. Increasing understanding about investment and markets boosts their other planning. The cycle goes on.

Anyway, I won’t hold my breath, but if any politician gets in touch I’ll let you know.

Speaking of crisis… Weather impact on our Easter Lamb

I’m on the mailing list for our local butcher (the Green Butcher – Twickenham – happy to give him a promotion) and we all know farmers do it tough, but his email before the Easter weekend gave a fascinating insight into meat production, a topic that most of us probably don’t think about, but invariably has an impact on our wallet due to prices.

From December to March this year, it has rained solidly. There has been no fresh grass growing and what little grass there is has been trampled into the mud by the sheep. When livestock are wet, they burn a lot more energy and so the lambs have spent the last 3 months losing weight. For the farmer this means a devaluing asset.The ideal market weight for a lamb carcass is 20kg. Most lambs on the farms we work with are currently at around 15-16kg. To get lambs up to 20kg (in wet weather) requires a good deal of supplement feed and this is expensive for the farmer. In February the price per KG for organic lamb was ￡5.60-￡6.00. This week lamb is trading between ￡8 and ￡9 per kg.

So the combination of Easter demand, the low supply availability (of market weight) lambs and Ramadan being earlier this year (high demand for lamb at the end of Ramadan on April 9th) means prices have shot up to levels I’ve not seen before.

Climate impact on lamb prices? Now, broaden this thinking in terms of all grains, other meats and you can start to get a sense that a significant CONSISTENT change in weather may require further adjustment in farming practices and our food supply chain. It’s not necessarily going to cause inflation all the time, as farmers are brilliant at adapting to whatever issues are thrown there way, however the market (whatever market) needs to find a clearing price between supply and demand.

Higher demand, smaller supply = higher prices.

Is the UK Government secretly mining it’s own Bitcoin?

I came across this chart which startled me. As we all know, Bitcoin is not an anonymous asset as the wallet’s can potentially be linked to the owners. It seems the UK Government owns 61,000 Bitcoin which is equivalent to around $4.3 Billion!

Was this Gordon Brown’s bright idea after selling the gold?? Is Rishi Sunak doing an El Salvador and linking the Bank of England to Bitcoin?

Not so interesting unfortunately. It looks like the UK government seized this Bitcoin after busting a money-laundering ring. Details here.

The question is, what do they do with it now??

Adam Walkom

**My personal views only. Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest.**