A Concerned Billionaire Develops a Plan for Retirements

2016-11-15 16:52:23

 

A Concerned Billionaire Develops a Plan for Retirements

Early last year, Hamilton E. James, president of the private equity giant Blackstone, received a bit of a jolt. Having just turned 65, Mr. James was eligible for his first Social Security check, and he could not believe what he saw.

“My wife and me would have to live on $2,600 per month, even with me paying in the max the whole time,” said Mr. James. “Which for a couple in Manhattan — how can you do that?”

Not that he would meet such a fate. Mr. James is a billionaire whose take-home pay last year was $233 million, so, as he is quick to point out, he and his family will be well taken care of when he decides to call it quits.

But Mr. James started asking himself: What about less fortunate Americans? What kind of nest eggs had they set aside for retirement?

So, in the spirit of an investment banker doing due diligence, Mr. James began to dig, poring over academic papers, calling labor economists and crunching numbers.

The results were worse than he expected.

The average retirement savings for Americans from the ages of 40 to 55 is $14,500, Mr. James discovered. Sixty-eight percent of working-age Americans do not have an employer-sponsored retirement plan. And by 2050, 25 million Americans are projected to face lives of poverty when they stop working.

“I think we have a big problem,” Mr. James said, adding, “We really need to do something about this.”

One step that Mr. James has taken — together with Teresa Ghilarducci, a specialist in retirement economics at the New School for Social Research, is to publish a book explaining how he would make things right with retirement. “Rescuing Retirement,” which features these troubling retirement statistics in its first pages, was released in September in paperback and e-book formats.

Recently, Mr. James took an hour out of his busy day to slip out of his office into a connecting boardroom to make the case that the country faces a looming crisis in preparing Americans for their postjob lives.

He wore a monogram shirt and had an easy air of authority that comes with a life arc of prep school, two degrees from Harvard and four decades of top jobs on Wall Street.

In an earlier era, Mr. James, who was an enthusiastic fund-raiser for Hillary Clinton and is nearing the end of his professional career, might have been considered for a juicy Washington job.

But instead, , Mr. James is following in the footsteps of Peter G. Peterson, a founder of Blackstone who used his position — and his checkbook — to warn publicly about the country’s financial frailties.

“Pete is a role model,” Mr. James said. “He felt an obligation to not just write big checks to charities but to further the public policy debate on big issues. It is the right thing to do.”

Their styles are different, though.

Mr. Peterson, a former secretary of commerce under President Nixon, preferred to lecture from on high about the evils of debt and deficits. Mr. James, a mergers and acquisitions banker at heart, opts for a dealmaker’s approach, and his book is less a disquisition than a series of action plans aimed at bringing Democrats and Republicans together.

At the root of why Americans have so little tucked away when retirement comes along, Mr. James asserts, is that it is just too easy to spend today instead of saving for tomorrow. Savers’ 401(k) plans are too easily tapped into and even when they are left alone, their returns over the long term suffer because of poor performance and steep fees charged by fund managers.

And then there is the startling fact that close to 70 percent of retirees have no employer-sponsored savings plan. Most of these people work in small businesses, like restaurants and dry cleaners.

In their book, Mr. James and Ms. Ghilarducci propose that workers and employers be compelled to contribute to a so-called guaranteed retirement account, or G.R.A., which would be independently managed by an investment firm or pension fund manager. Everyone would be required to contribute, with existing retirement plans rolled into the new account. Employers would also have to participate.

Compulsory saving and restrictions against account invasion would result in a larger pool of savings, which in turn would generate higher returns in the hands of professional managers, like a Fidelity or Vanguard, or an existing state pension fund, the authors argue.

On paper, it is a smart idea, given that it addresses the two main reasons Americans are not saving more: impatience and the need for better returns.

But what Mr. James is just now learning is that, given how polarized politics have become of late, proposing a good idea can mean precious little if there is no way to get both Democrats and Republicans to consider it.

And the responses from both sides of the aisle have been no more than polite.

How his ideas will fare under a Donald J. Trump presidency with a Republican Congress is anyone’s guess.

“It is a more natural sale for Democrats,” Mr. James said. “And on the Republican side, they need to know that this is not an entitlement program or a tax increase.”

Which it is not. “There is zero federal money involved,” Mr. James said with emphasis.

Mr. James has a theory, which he acknowledges borders on fantasy.

The real cause of the anger and frustration that this election season has unleashed — on the left and the right — is not lack of jobs or stagnant wages, Mr. James posits.

Rather, the common theme is a growing mass of white men with high school educations who are worried about their futures because they are getting older and have no savings. They ask: What happens if I get sick? How am I going to take care of my 90-year-old mother with no money in the bank?

“So I am thinking that our retirement plan will address this sense of anomie and worry that we are seeing right now,” Mr. James said. “And that if we get enough bipartisan support, this could be one of those rare bipartisan issues.”

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