« Back | Press release: April 25, 2013

Savings behavior still key driver in reaching retirement security, according to third annual lifetime income survey by putnam investments.

Americans Estimated to Replace 61% of Current Income in Retirement

Deferral Rate of 10%+, Access to Workplace Savings and Professional Investment Advice Emerge as Major Factors in Readiness

BOSTON, April 25, 2013 — The Putnam Lifetime Income Score SM research report, a survey of over 4,000 working Americans, finds that savings behavior remains the dominant variable in individuals' achieving a successful retirement – defined as the ability to replace current income in retirement. The third annual Putnam Investments study, issued today, finds that U.S. households are presently estimated to replace 61% (a Lifetime Income Score of 61) of their current income in retirement. Those best positioned for success share three characteristics: having access to workplace savings plans, deferring 10% or more of their income, and working with a financial advisor.

The Putnam Lifetime Income Score (LIS) survey, believed to be one of the most thorough and comprehensive analyses of American's retirement preparedness, takes account of a variety of financial factors, including Social Security, defined benefit and defined contribution assets, personal savings, home equity, business value, and potential inheritance. In its latest edition, for the first time, it also incorporates mortality rates associated with a variety of common health conditions.

"As awareness grows among working Americans that a financially successful retirement may require greater savings discipline, we think a solid understanding of the various factors at play could positively raise their chances of replacing current income in retirement," said Edmund F. Murphy III, Head of Defined Contribution, Putnam Investments. "In dissecting the survey's rich pool of data, one variable rises above all others – the level of individual savings is clearly the key driver of future retirement success."

Murphy noted that a number of critical success factors emerge from the study: access to well-designed workplace savings options on the job; a commitment over time by employees to save 10% or more, regardless of their income; and the use of a financial advisor have the potential to enable workers to achieve a higher level of income replacement in retirement. Additionally, he indicated that the Putnam study underscores the significance of plan design – including automatic enrollment and automatic escalation – in determining the ability to replace current income in retirement.

Key Findings:

Savings Behavior Looms Large
  • The Putnam research indicates that being prepared for retirement is not solely a function of "having more money," whether in terms of income or investable assets. Overall, the study found that American households deferring 10 percent or more of their income to retirement savings are estimated to replace over 106% of pre-retirement income. Further, when Lifetime Income Scores are evaluated by household income, 15% of all households earning less than $50,000 per year are on a current trajectory to generate 100% or more. Critical takeaway: High scores can be and are being achieved by individuals across the income spectrum, a fact that underscores the significance of consistent saving behavior.
Benchmarking Progress Based on Plan Access
  • Workers who are eligible for a workplace retirement plan are estimated to replace 73% of their income versus 41% for those who do not have such access. Active participants in a 401(k) plan are currently at the 79% level.
  • Interestingly, workers in the educational services industry are likeliest to be eligible for a workplace plan (82%), and are collectively estimated to replace 72% of current income, while those in the leisure and hospitality industry – the least likely to have access to workplace savings (54%) – are only estimated to achieve 55% replacement.
The Importance of a Financial Advisor
  • Investors' decision to use or not use a financial advisor has a sizable impact on their Lifetime Income Scores. Those who worked with a paid advisor scored at the 80% level, while those who did not had a showing of only 56%. Of workers currently in line to produce 100% or more of today's income in retirement, 39% report having an advisor.
Profile of Best/Least Prepared for Retirement
  • Best Prepared: Workers on target to replace 100% or more of their income in retirement, tend to be younger – under the age of 50 – males, better educated with higher income and likelier to have an advisor.
  • Least Prepared: Americans who are only able to generate 45% or less of today's income in retirement are disproportionately older, less educated and have lower income (although not dramatically).
  • NOTE: The most striking economic differentiator top to bottom is investable assets, pointing to the fact that retirement preparation is more about saving than about income.
Industry Comparison
  • Workers in the financial industry enjoy the highest Lifetime Income Score (76%), followed closely by the Information and Educational Services industries (both at 72%). The industries scoring lowest were Construction (52%) and Leisure and Hospitality (55%).
Auto Plan Features
  • Auto Enrollment: Among respondents who are eligible to participate in a 401(k) plan, the majority (67%) reported having opted in to their plan. Our study shows that auto enrollment has a significant impact on Lifetime Income Score. The median LIS for households with auto-enrolled 401(k) participants was 91% versus 73% for workers who had to opt in. In addition, average plan deferral rates for auto-enrolled workers were modestly higher (9%) than deferral rates for workers who opted in (8%).
  • Auto Escalation: The survey data point to an even more positive story with regard to the impact of auto escalation features on workers' retirement preparedness. Workers whose plans offer auto escalation had a median LIS of 95% versus 74% for workers who do not enjoy this feature. LIS scores of respondents with auto escalation were higher at all levels of household income. Further, average deferral rates for workers with auto escalation (10%) were appreciably higher than rates for workers who do not have this feature in their plan (8%), underscoring the impact of modern plan design can have in bolstering retirement preparedness.
Asset Allocation
  • Generally, households have heavily allocated their retirement assets to conservative investments, with an emphasis on cash (55%) over equities (30%) and fixed income instruments (15%). Within qualified plans, a noteworthy disparity emerges between self-directed and professionally advised portfolios: Advised portfolios were more heavily weighted to equities (40%) and fixed income (21%), while non-advised portfolios had a pronounced bias toward cash (60%).
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 first quarter of 2013. The survey of 4,089 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 March 2013, Putnam had $135 billion in assets under management. Putnam has offices in Boston, London, Frankfurt, Amsterdam, Tokyo, Beijing, Singapore and Sydney. For more information, visit putnam.com.

Putnam Media Contacts:

Jon Goldstein – 617-760-1127 (office), 516-946-5598 (cell), [email protected]
Laura McNamara – 617-760-1127 (office), 978-505-0524 (cell), [email protected]

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 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.

Putnam mutual funds are distributed by Putnam Retail Management.

Consider these risks before investing: All funds have risks and you can lose money. Our allocation of assets among permitted asset categories may hurt performance. The use of derivatives involves additional risks, such as the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Some of the funds may invest in international securities, which involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. For all income funds, these risks apply: Funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. For the Absolute Return 500 Fund and 700 Fund, these risks apply: 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. For Putnam Emerging Markets Income Fund, this risk applies: The fund is considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a more diversified fund. For the Absolute Return 500 Fund® and 700 Fund®, and the Spectrum Funds, these risks apply: Investments in small and/or midsize companies increase the risk of greater price fluctuations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. For the Spectrum Funds and Strategic Volatility Equity Fund, these risks apply: Our focus on leveraged companies and the funds' non-diversified status can increase the funds' vulnerability to other risks. Our use of short selling may increase these risks. For the Short-Term and Intermediate-Term Municipal Income Funds, these risks apply: Capital gains, if any, are taxable for federal and, in most cases, state purposes. For some investors, investment income may be subject to the federal alternative minimum tax. Income from federally tax-exempt funds may be subject to state and local taxes. For the Multi-Cap Funds these risks apply: The funds may invest a portion of their assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound.

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