Illustrating Lifetime Income

One of the best measures of success for any retirement system is its ability to reliably replace — for life — the income people made while working.

With this principle in mind, Putnam’s approach to the 401(k) marketplace has been to build an interactive user experience for plan participants that seeks to shift participants’ focus beyond current account balances and allocations and toward estimated monthly income needs in retirement. Our goal is to motivate plan participants to make better savings and investment decisions that will lead to more successful retirements.

In 2010, we developed and launched the Lifetime Income experience, built around Putnam’s Lifetime IncomeSM Analysis Tool (LIAT). LIAT is designed to move participants away from an often-paralyzing discussion of how they need to save millions of dollars in order to successfully retire. Instead, it encourages an understanding of the long-term impact of participants’ current saving behavior within their plan, along with specific actionable steps they can take to improve it.

The U.S. Department of Labor (DOL) recently published an Advance Notice of Proposed Rulemaking regarding the proposal to require lifetime income illustrations on pension benefit statements for defined contribution plans under section 105 of ERISA. Putnam welcomes and supports the DOL’s efforts to present monthly income in retirement calculations to participants.

Now several years into our effort to assist participants in making better retirement savings decisions through a focus on estimated monthly income, we are sharing our approach and insight as the DOL moves forward with rulemaking.

What do you think? As always, we value and welcome your insight on this topic. Please use the comments field and join the conversation.

IMPORTANT:  The projections, or other information generated by the Lifetime Income Analysis Tool 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 analyses present the likelihood of various investment outcomes if certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices. 

Each simulation takes into account the participant’s current plan balance and investment mix, as well as his or her age, income, retirement date, contribution rate, likely future savings, and estimated Social Security benefit. The tool runs over 50 billion market simulations to provide an estimate of a monthly income likely to be generated at retirement. The Lifetime Income Analysis Tool is an interactive investment tool designed for Putnam 401(k) participants to illustrate the estimated impact of a participant’s plan balances and projected savings on income in retirement. The tool takes into account both before-tax and after-tax accumulated balances and future regularly scheduled contributions for estimated projections. It cannot account for dramatic changes in a participant’s personal situation, including unexpected expenses and other financial situations that may negatively affect one’s estimated monthly income in retirement. You are advised to consider your other assets, income, investment options, investment time horizon, income tax bracket, and risk tolerance when planning for specific investment goals. It is recommended that you consult a financial advisor for more information. It is important to note that the results from this tool are estimates based on what you input today. The results are not a guarantee of actual outcomes and will change as your inputs change.

Health-care costs and projections are provided by HealthView Services, Inc., a third-party vendor. They provide broad, general estimates and information that may help you consider your retirement income needs by better understanding potential health-care costs. This estimate is provided for educational purposes only, and you should not rely on it as the primary basis for your medical, insurance, investment, financial, retirement, or tax planning decisions. Costs are estimated, hypothetical in nature, and not guaranteed. Your actual medical costs will likely vary (sometimes significantly) from the estimates. Putnam does not believe that HIPAA applies to the data obtained from plan participants using this new tool.