Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 22
Securing the financial future of millions
KKR has always been in the retirement business. Some of the first investors in our private equity funds were the state pension funds of Oregon, Washington and Michigan. Those public funds support the retirement benefits and livelihoods of millions of individuals caring for us and our communities.
The world has changed a lot since the early 1980s, when those first investments were made. One of the biggest changes has been the shift in retirement responsibility from employers to employees.
In 1980, 60% of private sector workers in the U.S. had defined benefit pension plans, which provided them with guaranteed retirement benefits. Today, only 15% of workers have access to these types of plans. The private sector has instead shifted to defined contribution plans that put the burden of saving for retirement on the retirees themselves.
What's more, according to the Federal Reserve, a quarter of non-retired Americans do not have any retirement savings at all, and a recent report by Morningstar Center for Retirement and Policy Studies made the staggering prediction that nearly half Americans retiring at 65 will run out of money in retirement.
At the same time, people are living longer than ever across the developed world, and rising health care expenses are increasing the financial demands of retirement. As a result, many people today are unprepared and unable to retire.
We're not only seeing this play out in the U.S., but also in Asia, where almost 70% of workers surveyed this year believe their finances are preventing them from retiring. A 2019 study by the World Economic Forum also found that retirees in six major economies are expected to outlive their savings by eight to 20 years. According to that study, Japanese retirees had approximately 4.5 years of savings on average and were expected to outlive their savings by approximately 15.1 years for men and 19.9 years for women versus 8.3 years and 10.9 years for U.S. men and women respectively.
Public pensions across the developed world are feeling the pressure of these trends. Funding for social security in the U.S. is projected to run out by 2035, meaning that without government intervention, retirees will only receive 83% of their full benefits and in Japan, households are expected to receive 20% less income from the public pension system by 2058.
This is no doubt this complex issue that requires an equally nuanced solution, but I strongly believe that investment firms like KKR have a role to play. Just like we've helped deliver returns for our public pension clients and their plan participants -- teachers, firemen, police officers and government workers. We're now finding that thanks to innovative fund structures, we are increasingly able to reach individual investors, who have historically not had access to alternative investment options.
If you had asked me 20 years ago whether I thought individuals would become a major part of our investor base, I would have probably been skeptical, but fast-forward to today, we are managing a significant and growing amount of capital on behalf of individuals globally, both through our dedicated investment products and through annuities offered by our wholly owned insurance subsidiary, Global Atlantic Financial Group.
I expect that trend to continue and to become even more relevant as these asset classes become more accessible and the need for yield intensifies. For example, we recently formed a strategic partnership with Capital Group, one of the world's biggest and oldest asset managers to create a series of hybrid public private investment products for mass affluent investors -- a group that we estimate to account for more than 40% of the wealth market globally.