« Back | Press release: May 24, 2012

Savings Behavior Remains a Dominant Factor in Driving Secure Retirement, According to New Lifetime Income Research from Putnam Investments

Access to Workplace Savings Plans, Deferring at Least 10% and Using a Financial Advisor Are Key Success Variables Determining Ability to Replace Current Income in Retirement

Putnam CEO Robert L. Reynolds Points to the Need for a Strengthened Retirement System to Address the Declining Level of Preparedness by Lower-Income Households

In the most recent edition of the Putnam Lifetime Income ScoreSM research report, a survey of nearly 4,000 working Americans that help determine current levels of retirement preparedness, Putnam Investments research indicates that a critical factor continues to be savings behavior. With U.S. households presently on track to replace 65% of their current income in retirement (65 score) — a slight uptick from the June 2011 report — those best positioned for success have access to workplace savings plans, and proceed to defer 10% or more of their income.

The Putnam Lifetime Income Score survey is designed to be one of the most thorough and comprehensive studies conducted to determine retirement preparedness of Americans. The research looks at behavioral tendencies, mortality factors and current retirement and non-retirement assets, such as home equity, investment securities, annuities and cash value life insurance, to estimate the level of income that U.S. households are currently on track to replace in retirement. Highlights of the May 2012 Lifetime Income Score research report were unveiled yesterday at an industry event in New York City, entitled “Health, Wealth and the Future of Retirement,” hosted by Putnam Investments.

While the study highlighted several key success factors, total household savings continued to be a critical determinant of retirement preparedness. Households that were best prepared — with scores of 100% or more — have a total household retirement savings rate of 27.4%, while those least prepared (0% to <45%) had total household retirement savings rates of only 5.1%.

“While this year’s Putnam Lifetime Income Score research provides a number of reasons to be optimistic about the ability of working Americans to take the fate of their retirement security into their own hands, it also underscores the work that still needs to be done by the industry and policy makers to preserve and strengthen our country’s retirement system,” said Edmund F. Murphy III, Head of Defined Contribution, Putnam Investments.

Speaking at a retirement security forum in Washington, D.C. earlier this month, sponsored by the Financial Services Roundtable, Putnam Investments President and CEO Robert L. Reynolds said that, “America’s retirement saving challenge is real and urgent. The Putnam Lifetime Income Score analysis suggests the need for a robust workplace savings system that covers nearly all working Americans and raises the national savings rate. Additionally, a solvent Social Security system could ensure a strong safety net for low-income Americans and a valuable base even for the more affluent.

“With their retirement futures secure, knowing that they are on track to replace their pre-retirement incomes, working Americans would be more confident and empowered,” emphasized Reynolds.

Additional Highlights of the Study Include:

  • Traits of the Best Prepared
    • Savings and related behaviors continue to be the most influential factors driving Lifetime Income Scores and retirement preparedness. The best prepared (100% or more) actively participated in a workplace savings plan with deferral rates of 10% or more, utilized the services of a financial advisor, and indicated higher confidence in their financial decision-making ability.
  • Power of Advice
    • Individuals’ decision to use or not use a financial advisor had a material impact on Lifetime Income Scores over the past year. Those who worked with a financial advisor saw their score rise to a median of 89 this year from 82 last year, while the score for those who did not utilize such services declined from 61 to 58.
  • Scores Are Higher for Those Who Have a Financial Plan
    • Lifetime Income Scores varied significantly for those who processed a financial plan (117) versus individuals who did not (58). Of particular note, those who have a plan that considers health care scored higher (123).
  • Lifetime Income Score — Industry Leaders
    • Eligibility for workplace retirement plans varies by industry and drives Lifetime Income Scores to a large extent. Plan-eligible workers in information services had the highest Lifetime Income Score (100). Plan-ineligible workers across all industries had the lowest score (41).
  • Home and Business Ownership Give a Boost to Overall Score
    • For those 27% of workers who expect to apply their real estate equity to retirement income, the base Lifetime Income Score was 77, but rose to 84 when home equity was factored in. Similarly, among the 11% of workers who intend to apply business value to retirement income, the base Lifetime Income Score was 70, but rose to 92 when business value was taken into account.

About the Survey
The Putnam Lifetime Income Survey, with research methodology provided by the Putnam Institute, was conducted online by Brightwork Partners and completed in the last quarter of 2011. The survey of 3,958 working adults age 18 to 65 was weighted to U.S. Census parameters for all working adults.

About Brightwork Partners LLC
Brightwork Partners is a specialty research and consulting firm focusing primarily on the retirement services market. Founded in 1999, the firm routinely conducts custom and multi-client research among advisors, consultants, plan sponsors, third party administrators and participants on behalf of major providers in the industry.

About Putnam Investments
Founded in 1937, Putnam Investments is a leading global money management firm with 75 years of investment experience. At the end of April 2012, Putnam had $124 billion in assets under management. Putnam has offices in Boston, London, Frankfurt, Amsterdam, Tokyo, Singapore and Sydney. For more information, visit putnam.com.

This information is not meant as tax or legal advice. Please consult with the appropriate tax or legal professional regarding your particular circumstances before making any investment decisions.

IMPORTANT: The projections, or other information generated by the Lifetime Income Score regarding the likelihood of various investment outcomes, are hypothetical in nature. They do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time.

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. 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.

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