PUTNAM INVESTMENTS TO DRAMATICALLY STRENGTHEN COMPANIES’ AWARENESS OF EMPLOYEES’ READINESS FOR RETIREMENT
Putnam Lifetime Income ScoreSM — Providing “Critical Plan-Level Perspective and Useful Drill-Down Insight” — Now Available to Plan Sponsors
BOSTON, September 14, 2011 — In a move designed to better enable retirement plan sponsors to exercise their fiduciary responsibility in helping employees attain more successful financial outcomes in retirement, Putnam Investments today announced that its proprietary Lifetime Income ScoreNsup>SMwill be made available more broadly to the defined contribution marketplace.
Building off of the ability of Putnam plan participants to view their highly customized Lifetime Income Score — measuring their individual retirement income replacement trajectories — Putnam will now be providing employers with a uniquely dynamic view of how well their plan is working in the aggregate, as well as specific areas of focus to lead to greater plan success.
Using its Lifetime Income Score analytics, Putnam will be offering critical plan-level perspective and useful drill-down insight to 401(k) plan sponsors, which can enable them to take a series of actions to help positively influence the retirement preparedness of their workers. Plan sponsors and their advisors will have the ability to review participant readiness by demographic groups to pinpoint those most at risk, develop targeted and measurable campaigns to educate and engage least-prepared employees, showcase income calculations at the forefront of participant communications, and introduce tools to help participants calculate income goals and gaps — and measure usage.
“There is a rising expectation in the marketplace that plan sponsors will take a greater role in helping their participants adequately prepare for retirement,” said Edmund F. Murphy III, Head of Defined Contribution, Putnam Investments. “To do that, they need to know whether their employees are on track, from a future income perspective, to enjoy a dignified retirement, and how well their plans are working in readying their workers for retirement.”
The Putnam Lifetime Income Score plan-level results will be available to 401(k) plan sponsor clients of Putnam and their advisors on an ongoing, real-time basis. All qualified plan sponsors — and their consultants – regardless of their client status, are eligible to receive a complimentary overview assessment if requested.
“The name of the game is empowering plan sponsors to focus on ‘guided outcome’ for their participants,” Murphy noted. “The Putnam Lifetime Income Score was designed in large part to address concern among plan sponsors about their workers’ readiness for retirement. Employers will now have an entirely new level of analytics and comprehensive reporting to allow them to benchmark and track their progress, and to ultimately serve as a basis for taking confident action in strengthening their plans.”
According to a recent study,* 62 percent of sponsors said that their responsibility includes seeing whether their employees are on course for a comfortable retirement. However, just 18 percent of sponsors have conducted a retirement readiness assessment during the past year. Sponsors feel responsible for ensuring their workers are on track for a secure retirement, but may lack the tools to assess that progress.
Focus on Retirement Income
The Putnam Lifetime Income Score takes a holistic view of behavioral tendencies, demographic and mortality factors, current household income, savings, and future contributions from a plan participant’s age today through age 65. The Putnam-developed methodology translates current assets, asset allocation mix, future saving deferrals, company match, and Social Security, into estimated monthly retirement income, reflected in an easy-to-understand Lifetime Income Score that helps plan participants know where they stand on retirement readiness.
“The new offering to plan sponsors will allow Putnam Lifetime Income Score figures to be rolled up in a meaningful way to allow for targeted guidance and communication to bolster preparedness in areas of need within a participant base,” Murphy indicated.
America’s Lifetime Income Score
The research, believed to be one of the most comprehensive such studies ever conducted, found that American households are on track to replace an average of 64 percent of their current income in retirement. Many financial professionals recommend that workers seek to replace 75 percent of their current income once they retire.
“Clearly there remains a lot of work to be done to help get individuals on a more solid track to replace their current income in retirement,” said Murphy. “We believe that by providing action-oriented tools, resources, and information to the retirement savings community, significant inroads can be made to close the existing gap and deliver much stronger outcomes for working Americans.”
Putnam Investments and Retirement
In addition to such initiatives as the Putnam Lifetime Income Score methodology, Putnam will also be officially launching a suite of income-oriented mutual funds that aim to help advisors work with retirees in developing strategies for monthly income flows, at varying levels of risk tolerance, to flexibly address their changing lifestyle financial needs throughout retirement.
Putnam RetirementReady® Funds, the firm’s suite of 10 target-date/lifecycle retirement funds, were the first suite of lifecycle funds to integrate Putnam Absolute Return Funds, which seek positive returns above inflation over three years with reduced volatility than has been associated with traditional asset classes that have earned similar rates of return. Employed in retirement portfolios, Putnam Absolute Return Funds*** are intended to pursue positive returns in up and down markets, to help protect against the harmful effects of adverse investment returns and to seek to reduce volatility.
About Putnam Investments
* Deloitte Annual 401(k) Survey Retirement Readiness, 2010.
** The Putnam Lifetime Income Survey, with research methodology provided by the Putnam Institute, was conducted online by Brightwork Partners and completed in the first quarter of 2011. The survey of 3,290 working adults age 18 to 65 was weighted to U.S. Census parameters for all working adults.
*** Putnam’s Absolute Return Funds are not intended to outperform stocks and bonds during strong market rallies.
The Putnam Lifetime Income ScoreSM represents an estimate of the percentage of current income that an individual might need to replace from savings in order to fund retirement expenses. For example, consider an individual, 45 years old, with an income of $100,000 per year. A Lifetime Income Score of 64% indicates that the individual is on track to be able to generate $64,000 in retirement income (in today’s dollars), i.e., 64% of current income. This income estimate is based on the individual’s amount of current savings as well as future contributions to savings (as provided by participants in the survey) and includes investments in 401(k) plans, IRAs, taxable accounts, variable annuities, cash value of life insurance, and income from defined benefit pension plans. It also includes future wage growth from present age (e.g., 45) to the retirement age of 65 (1% greater than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)) as well an estimate for future Social Security benefits.
The Lifetime Income Score estimate is derived from the present value discounting of the future cash flows associated with an individual’s retirement savings and expenses. It incorporates the uncertainty around investment returns (consistent with historical return volatility) as well as the mortality uncertainty that creates a retirement horizon of indeterminate length. Specifically, the Lifetime Income Score procedure begins with the selection of a present value discount rate based on the individual’s current retirement asset allocation (stocks, bonds, and cash). A rate is determined from historical returns such that 90% of the empirical observations of the returns associated with the asset allocation are greater than the selected discount rate. This rate is then used for all discounting of the survival probability-weighted cash flows to derive a present value of a retirement plan. Alternative spending levels in retirement are examined in conjunction with this discounting process until the present value of cash flows is exactly zero. The spending level that generates a zero retirement plan present value is the income estimate selected as the basis for the Lifetime Income Score. In other words, it is an income level that is consistent with a 90% confidence in funding retirement. It is viewed as a “sustainable” spending level and one that is an appropriate benchmark for retirement planning.
The survey is not a prediction, and results may be higher or lower based on actual market returns.
Each RetirementReady Fund has a different target date indicating when the fund’s investors expect to retire and begin withdrawing assets from their account, typically at retirement. The dates range from 2015 to 2055 in five-year intervals, with the exception of Putnam Retirement Income Fund Lifestyle I, which is designed for investors at or near retirement. The funds are generally weighted more heavily toward more aggressive, higher-risk investments when the target date of the fund is far off, and more conservative, lower-risk investments when the target date of the fund is near. This means that both the risk of your investment and your potential return are reduced as the target date of the particular fund approaches, although there can be no assurance that any one fund will have less risk or more reward than any other fund. The principal value of the funds is not guaranteed at any time, including the target date.
Consider these risks before investing: Asset allocation decisions may not always be correct and may adversely affect fund performance. The use of leverage through derivatives may magnify this risk. Leverage and derivatives carry other risks that may result in losses, including the effects of unexpected market shifts and/or the potential illiquidity of certain derivatives. International investments carry risks of volatile currencies, economies, and governments, and emerging-market securities can be illiquid. Bonds are affected by changes in interest rates, credit conditions, and inflation. As interest rates rise, prices of bonds fall. Long-term bonds are more sensitive to interest-rate risk than short-term bonds, while lower-rated bonds may offer higher yields in return for more risk. Unlike bonds, bond funds have ongoing fees and expenses. Stocks of small and/or midsize companies increase the risk of greater price fluctuations. REITs involve the risks of real estate investing, including declining property values. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. Additional risks are listed in the funds' prospectus.
Money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in this fund.
Request a prospectus, or a summary prospectus if available, from your financial representative or by calling Putnam at 1-800-225-1581. The prospectus includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.Putnam Retail Management