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This is an audio transcript of the Money Clinic podcast episode: ‘Investment masterclass: Should women plan differently for their retirement?’

Claer Barrett
Hi there, it’s Claer here. The FT has granted me some time off for good behaviour, but I leave you in the very capable hands of my colleague, Brooke Masters, the FT’s New York-based financial editor. This week, she’s delivering an investment masterclass that I know you’re going to love, grilling a high-profile female investor in the US who is in charge of managing the retirement assets of over 35mn Americans. So listen up. There’s some great tips for all of us coming up.

Brooke Masters
Thank you, Claer. I’m Brooke Masters, the FT’s US financial editor. Welcome to Money Clinic. Today, we’re talking about the R word: retirement. It sneaks up on you sooner than you would think. So you need to prepare. To help us do that, I’ve brought on someone who knows a great deal about retirement planning: Anne Ackerley.

Anne Ackerley
Hi, delighted to be here. I’m Anne Ackerley, and I head the retirement group at BlackRock focusing on the US, which means I work with large and small employers throughout the country about what’s in their retirement plans.

Brooke Masters
BlackRock is the world’s largest money manager. And as the head of its retirement group, Anne spends her days thinking about how to make good retirement plans accessible to more people. Lately, her teams have spent a lot of time focusing on the different issues men and women face when it comes to retirement planning.

Up to now, most products have been designed with the traditional male employee in mind. BlackRock is trying to change that. Anne tells me that there are three main issues that come up for women in planning for retirement. One, women tend to earn less than men over the course of their careers. Two, they’re more likely to take significant time off to care for a child or elderly parent. And three, they tend to live longer than men, so their money needs to go further in retirement. I talked to Anne about all of these factors and how BlackRock is building tools that help women take them into account when making plans for the future. So let’s dive in. Here’s my conversation with Anne Ackerley.

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How do you think about your role and what BlackRock is trying to do for its clients sort of writ large?

Anne Ackerley
When we look at retirement globally, it’s clear there are a lot of changes and a lot of challenges going on. And certainly one of the biggest moves over the last, let’s call it, 10, 20 years, has been this shift from defined benefit to defined contribution. Right? Moving from, you know, the government or the employer really being responsible to the individual being responsible. And so we’re very focused on how do we help individuals be prepared for retirement? How do we help employers help their employees be prepared for retirement?

Brooke Masters
So we’re here to chat because BlackRock is doing something unusual. You all are designing products that are aimed at gender disparities in retirement savings. And obviously you took that up because there is a disparity. Walk us through what are the issues that you’re trying to solve? And then we’ll talk about how you’re trying to solve them.

Anne Ackerley
Look, retirement planning and retirement saving is hard for everybody, and we should acknowledge that. But it’s particularly challenging for women. There are a number of reasons why. Right? Women tend to make less than men. The wage gap, you know, let’s call it 82 cents on the dollar. So even if women are saving the same amount as men, it’s a lower dollar amount. And that gets compounded over 40 years. You know, the second thing is that women often have gaps in their working years. This might be for childcare. It might be for adult care. You know, women provide the largest amount of unpaid care in the world. And again, these gaps cause savings to be lower. And there’s also an issue of access, less so obviously in the UK, in some other countries. But certainly in the United States, there is no requirement for an employer to have a plan. And so almost half of the US population has no access to a workplace plan. So if you take all of these — the wage gap, caregiving, lack of access — you wind up that women often have much, much less in savings at retirement. And Mercer has actually qualified that. When they look at the US, they say it’s about 30 per cent less. You look at the UK, it’s 40 per cent less, Japan 50 per cent less. And there are some countries that do better. Estonia probably has the lowest gap, but it’s not zero. So a gap exists in every country in the world.

Brooke Masters
And I guess also there’s a problem that women tend to live longer so they have less money to cover more time.

Anne Ackerley
Absolutely. Their pots are smaller when they get to retirement and they, on average, live about five years longer than men. You know, women today who’s 65 in good health, you know, has a 25 per cent chance of living to 96. That is a very long amount of time that we need to think about helping people finance and not run out of money.

Brooke Masters
So given all these challenges, what did you guys do to come up with products that would help?

Anne Ackerley
You know, we focused on a number of things. Let me just start off with kind of access. Again, this is more in the US. The UK has actually solved this problem by mandating that everybody have to contribute. But in the US, as I said, you know, half of private sector workers have no access. There are tech companies that are making it cheaper and easier for companies to provide plans. And so BlackRock recently invested in a company called Human Interest that is a tech-enabled platform and making it really easy for small and medium businesses. So one thing is we’re trying to help with this access issue.

With respect to products, we’ve been focused on innovation. And let me talk about two. One was looking at, you know, should women invest differently than men? And when you look at their earnings curve and the fact that we already talked about they live longer, we realised that women probably should be taking some more risk — particularly during, you know, from age 40 to when they retire — than men. And again, that’s to try to compensate for lower salaries and living longer. And so we came out with something called model portfolios for women, which really are just a guidance to say maybe how women should be investing differently than men.

Brooke Masters
So explain to me, Anne, how does a model portfolio work and how is this one special?

Anne Ackerley
So a model portfolio is kind of what it sounds like. It’s an example of a portfolio, right? So you could go on a website and it would say, you know, if you were this age, here’s the asset allocations that would make sense for you.

Brooke Masters
This much stocks, this much bonds?

Anne Ackerley
Right. And this type of stocks and this type of bonds. And it would break it down for you. Often we suggest that you invest in index, so you keep it low-cost investing. But the concept is then, you know, different financial advisers or different individuals can look at this model portfolio and then implement it in different accounts that they have. So it’s not buying a pre-packaged product.

Brooke Masters
Mm-hmm.

Anne Ackerley
It’s more looking at these model portfolios, deciding what makes sense, and then implementing it.

Brooke Masters
I think I’ve got you. So, like, if I looked at your model portfolio and it says, “OK, you need to have a certain amount of an S&P 500 index fund”, I could actually then say, “OK, my retirement account has a S&P 500 fund, so I’m going to put that amount into it.” So it’s not that I’m buying a BlackRock fund, it’s that I’ve got the percentages with what I’ve already got.

Anne Ackerley
Exactly. You can take a look at what we’re suggesting and then figure out where you want to implement it in. Most retirement plans allow you to do it yourself, right? They’ll just be building blocks and you can do it. Or retirement plans also have what I would call like, an all-in-one solution.

Brooke Masters
Mm-hmm.

Anne Ackerley
That you can just invest in that. And it’s kind of up to you to choose what you want to do. The other thing that we have focused on — and again, this is gender-neutral but could really help women — is to think about guaranteed income and to think about the role that guaranteed income should play in somebody’s retirement. And so we’ve come up with the solution that would be available in a retirement plan that would give access to inexpensive, simple, guaranteed income that could last a lifetime. And again, not specifically geared for women, but as we think about women’s challenges, we think guaranteed income has a real role to play.

Brooke Masters
For our people who are not financial experts, guaranteed income sounds great. I like to win the lottery and get paid every year. How does guaranteed income work? I give you my pot of money and you promise me money?

Anne Ackerley
You would give an insurance company a piece of your money. Right? We wouldn’t recommend somebody give up a 100 per cent of their money. In the solution we’ve come up with, it’s about 30 per cent. And what we’ve done is work with insurance companies to make sure this guaranteed money — called an annuity — is simple, cost-effective, easy to implement. But again, we would recommend it would be for a piece of your pot, not your whole pot.

Brooke Masters
And that means that so when markets go up, markets go down. Markets go up, I have one stream that doesn’t go up as much, but I know it’s always going to pay. And when the market goes down, I’m still getting paid the same amount.

Anne Ackerley
Absolutely. And the concept would be to try to cover your fixed costs. Right? You know, there’s going to be a certain amount of fixed costs in retirement or, excuse me, fixed expenses and to try to have a guaranteed stream that, as you say, doesn’t fluctuate with the market, but also you can’t outlive.

Brooke Masters
That makes a lot of sense. Then you don’t have to worry that in the end I’m going to no longer be able to pay my heating bill which these days — uff.

Anne Ackerley
Exactly.

Brooke Masters
Anne, what trade-offs . . . whether or not they buy your products, if you were going to give people three pieces of advice, like women in particular, but also people who have interrupted careers. So gig economy type people. Three pieces of simple advice that they should think about as they try to plan for their retirement. What would you give? Or three steps?

Anne Ackerley
So for women, you know, and I do talk to a lot of women, including I have an adult daughter. One thing I say is: “Let’s talk about money. So one of I think the most important things is sharing ideas and sharing, you know, what’s working for you. Let’s talk about it. Negotiate your salary. You know, super important for women. You know, you lock in a low salary, you might be stuck with that your whole life. Mostly what I think is super important and so hard to do is save early. As much as you can so that you can get that compounding over time. And you know, what happens is people, you know, they get in their thirties and maybe they get married and they start to think more about financial security. You’ve missed 10 years that you could have been saving even just a little to get that compounding over time. Keep your money in the market, you know, over a 40-year time period, it’s likely to have a better return than trying to go in and out of the market. If you don’t have access to a workplace plan, and so many gig workers don’t, you’ve got to find a way to set up your own account and try to be disciplined about saving there. And it’s just so hard.

Brooke Masters
It is really hard. It’s funny, when I first started working as a reporter, I was you know, I had been an intern. So the guy who ran the internship program always looked after us baby reporters. Like when I finally signed my permanent contract, he came by and said, “Did you sign up for the 401K plan?”, which is the American retirement thing. And I was like, “Yeah, I put in like 2 per cent”, you know, I need my money. And he’s like, “Brooke, go change your documents. You’re going to max out. Make sure you get that employer match. Because if you put it in now, it’ll be there in 40 years.” And I think that’s . . . there need to be more people like that because I honestly, if he had not come and made me change my documents, I would . . . I did save something. I’ll give myself that. But I didn’t max out the match. I was like, “I have no cash. I got to pay the rent.”

Anne Ackerley
I mean, that’s in part why I say, like, we have to be much more comfortable talking about money. I have two adult children, a son and a daughter. I’m always harassing them about “How much are you saving?”, “Are you getting the employer match?”, “Can you do more?” And you know, it’s a complicated thing because people want to also live their lives.

Brooke Masters
You guys introduced the model portfolios for women last year. You said at the time that it was like the first time anybody had done a product like this. Why didn’t anyone else?

Anne Ackerley
One thing I’d say is, you know, the pandemic really put a light on women’s situations. Not that this is new. It is not new. But with so many women leaving the workforce, with all the childcare that had to happen there, we really started to think about what is the situation that women are in and how can we help? And I think the model portfolios are in part about a dialogue, a dialogue with financial advisers, a dialogue with women. You’re going to live longer, you’re likely making less money. What can you do?

Brooke Masters
You’ve been selling and running these portfolios now live for . . . it must be six or seven months. And it’s not been an easy market. Have you learned anything unexpected? Has it done exactly what you expected?

Anne Ackerley
I think what we learned, again, is this is really about starting a dialogue. It’s about focusing on these differences and trying to make financial advisers and companies aware of these discrepancies that happen. You know, when I think about companies, they like to, you know, treat all employees the same. And yet we need to focus on maybe they’re not all the same and maybe we need to do different things for different populations within an organisation. Again, different people react to money differently, and I think employers need to start thinking about different populations and what they might need.

Brooke Masters
How much does it matter that the financial services industry is incredibly male-dominated? It’s getting better and it seems like your corner of it is better than investment banking. Has that changed how people think about this stuff?

Anne Ackerley
I think there is a big shift going on and maybe we’re in the early days. You know, my understanding as a financial adviser today is 65, white and male. And yet when we look at where money is ultimately going to be, a lot of it is going to be in the hands of women. And there was a lot of discussion about women living longer. They tend to be widowed or divorced. And just the importance of reaching that demographic is going to be critical.

Brooke Masters
You were saying a few minutes ago that governments need to get involved in all this. The US government tried to, on the margin, make some improvements last year to the way that retirement plans work. It’s called Secure 2.0, because the first time they did this, that was the Secure Act and now it’s 2.0. Tell us a little bit about the developments within that might help with some of these problems for people who work for small employers who don’t have plans and people with interrupted jobs and those sort of things.

Anne Ackerley
So Secure 2.0 had a lot of provisions. And actually when you combine it with Secure 1.0, there’s lots and lots of provisions and some of them are small, but in aggregate they are trying to address these needs. A couple provisions just to mention tax credits, increased tax credits for small businesses. Again, trying to encourage them to provide plans. They changed requirements for part-time workers. So I think that’s something that very much affects women. They reduced the number of years. Women now, if you work 500 hours over two years, you can be eligible for a retirement plan. It used to be three years. So it’s trying to get at you know, we need to include more part-time workers into the system. So there are a bunch, I’d say kind of small, but in aggregate, trying to get at some of these access and employment issues.

Brooke Masters
I saw a really interesting study that said when people change jobs, they often are really stupid about what they do with their little tiny retirement. Because you’ve been there for, you know, two years, three years and you’ve got a small amount of money. And how do we get people not to like, take that money out and spend it, but actually keep it and roll it into another plan?

Anne Ackerley
I mean, that’s such a big piece of what they call leakage. We need to make it easier. People aren’t stupid. They just are living very busy lives. They don’t live in finance and we need to make it easier for people and empower people to make better decisions. I don’t know if you’ve ever tried, but rolling over from one employer to another employer is so time-consuming and so hard. Who has time? I work in the industry. I was trying to help my husband do it. You know, we gave up. And so I think there are simplifications that have to happen in that process. And in fact, there is part of the Secure provision for small accounts letting employers automatically enrol to the new employer. So that might now happen automatically.

Brooke Masters
That’s great. I have to confess I am still running two employment plans. Literally both of them at Vanguard because I tried once. Exactly. I tried once to roll them together and they’re like, “You need this paper and that paper and you need to find the administrator.” And I was like, “Forget it. I’ll just roll them both.” And they sit next to each other on my account, which is just stupid. I mean, that is dumb. More broadly, are there trends in retirement planning that you think we should be aware of? Like what’s new and you know, and what are really positive things that are coming down the line?

Anne Ackerley
Big trend now is really focusing on particularly as our population is ageing. You know what is going to happen in retirement and how do we take those what we call pots of money and convert them into streams of income? And it’s actually Bill Sharpe, the Nobel laureate, calls it the hardest, toughest problem in finance, because you have a pot of money when you retire. You don’t know how long you’re going to live. You don’t know what your expenses are going to be really, and you don’t know what the market’s going to do. And yet we’ve kind of said to everybody, “Hey, go figure it out yourself.” And so there’s a move towards trying to do some of those things about making things automatic on the retirement side with income, whether it’s a guaranteed solution or a non-guaranteed solution, helping people take their pot and figure out how to spend it so they won’t run out of money. That’s a big, really important trend in retirement right now.

Brooke Masters
Sounds like it. One thing we didn’t address is you’ve said that women need to take more risk because they don’t have as much money. Taking more risk means there’s a chance of it not working. As an investor, I look forward and say, “OK, I need to take more risk, but I also don’t want to end up with nothing. How do I not get taken for a ride?”

Anne Ackerley
Again, I think it’s when you take the risk and we encourage people, not just women, you know, young people should be completely invested in the markets. I mean, there should be some pool of money that you have in emergency savings for the unexpected. But the rest of it, your savings, you know, if you’re not going to need that money soon, put it in the market. Yes, it’s volatile, but over a longer period of time, it has likely to go up. Same thing for women. I think it’s when you take that risk. Right. So we’re going to live longer. I think what we’re saying is you just need to take more risk, you know, sort of in your forties and fifties, and then you’ll start taking risk off the table. And again, there are solutions and products that can do this for you. I’m not saying everybody needs to be a, you know, amazing investor. I find it’s all about like, how do we empower people to make good decisions over a lifetime?

Brooke Masters
Are there any final words of wisdom you want to share with our listeners as they think about, you know, living through this?

Anne Ackerley
I think it’s about start small. I think sometimes we all get so overwhelmed with, “Oh my gosh, how am I going to do this?” And it’s about putting a little bit aside when you can. And keeping it in the market would be one big piece. Like just doing a little something to get you going. Two, I feel like as a society, we have to encourage people to talk about it more. And I know you’re doing that at the Financial Times and with podcasts. There are taboos and we could all help each other. I think we need to talk about it more. Probably those’d be my two biggest suggestions for people. Start small.

Brooke Masters
Thanks so much for being with us, Anne. We really appreciate it.

Anne Ackerley
Thanks so much for inviting me. It’s been a pleasure. And obviously something critically important for all of us to be talking about.

[MUSIC PLAYING]

Brooke Masters
That’s it for Money Clinic. With me, Brooke Masters This week was produced by Zach St Louis. You heard original tunes by Metaphor Music.

And finally, our usual disclaimer. The Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that, you’ll need to find an independent financial adviser. Claer will be back with you next week. Goodbye for now.

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