This document discusses factors that determine how prepared households are for retirement. It introduces the Putnam Lifetime Income Score (LIS), which estimates the percentage of pre-retirement income a household is likely to replace during retirement. The document then outlines three key characteristics of households most prepared for retirement according to their LIS: having access to an employer retirement plan, saving at least 10% of income, and working with a financial advisor. It also notes the importance of planning for healthcare costs in retirement.

1. If your goal is to continue to enjoy
your current income level in retirement,
how could you get there?
The Putnam Lifetime Income ScoreSM (LIS) survey estimates the
percentage of income a household is likely to replace in retirement.
45
61
100
125+
LIS
61%
Least prepared
Average
Best prepared
With an LIS of less than 45,
Average households have
The best prepared
the least prepared households
an LIS of 61 and anticipate
households have an LIS
are at risk of running out of
replacing at least 61% of
of 100 or more and share
money during retirement.
current income in retirement.
several common traits.
The LIS incorporates a range of factors including projections for Social Security, retirement
plan assets, personal savings, home equity, business value, inheritance, and the impact of
mortality rates associated with several chronic health conditions. Introduced in 2011 and
conducted with Brightwork Partners, the 2013 survey included more than 4,000 households.
The average score was 61. A lower score indicates a lower probability of replacing sufficient
income in retirement. A score of 100 would indicate a high probability of replacing 100% of
income in retirement.
Top 3 characteristics
of those most prepared
for retirement
They have access to an employer-sponsored retirement
savings plan, like a 401(k), which helps them achieve a
higher Lifetime Income Score.
LIS
LIS
79%
73
LIS
%
55% of the population
have access to a defined
contribution plan like a
401(k) and are actively
participating.
70% of households
were eligible for an
employer-based
retirement savings plan.
41
%
30% of the U.S.
population have
no access to an
employer-sponsored
retirement plan,
such as a 401(k).
K E Y TA K E A WAY
Access is not enough. Participation is also a critical factor in boosting one’s
ability to prepare financially for retirement.
They save at least 10% of their current
income in their plan, which can help
elevate their Lifetime Income Score.
LIS
LIS
121
%
106
LIS
LIS
LIS
LIS
LIS
48
%
0%
59
0.01–4%
88
%
%
78
%
68
%
%
4 – 6%
6–8%
8 –10%
10% +
15% +
Contribution Rate
K E Y TA K E A WAY
The most important factor in the determination of retirement preparedness
is financial behavior — specifically, the propensity to save.
They use the services of a
professional financial advisor.
Non-advised
Average asset allocations
Professionally advised
Average asset allocations
StocksStocks
StocksStocks
Cash Cash
LIS
Cash Cash
LIS
80
80
%
%
Bonds Bonds
LIS
LIS
5656
Bonds Bonds
%
%
K E Y TA K E A WAY
Households working with a financial advisor had higher Lifetime Income
Scores, were more confident about having sufficient savings in retirement,
and invested higher allocations to stocks and bonds than to cash.
Have you considered the impact
of future health-care expenses
on your retirement savings?
While most households surveyed indicated
they were interested in a retirement planning
tool to estimate future health-care expenses,
only a fraction had a written, financial plan
that included health care.
While most anticipate rising expenses, only
1 in 10 households have a formal financial
plan that factors in health-care costs.
LIS
98
%
LIS
Lifetime Income Score of
those who worked with an
advisor on a written plan
that includes anticipated
health-care costs in
retirement
58%
Lifetime Income
Score of those with
no written plan
Health-care expenses are a significant
part of spending in retirement
Estimated savings needed for Medicare premiums and
out-of-pocket expenses in retirement*
At age 65 in 2013
$454,000
At age 65 in 2020
$255,000
$208,000
$255,000
$139,000
$122,000
Single man
Single woman
Married couple
The Putnam Lifetime Income Survey, with research methodology provided by the Putnam Institute, was
conducted online by Brightwork Partners and completed in January 2013. The survey of 4,089 working
adults age 18 to 65 was weighted to U.S. Census parameters for all working adults.
* Employee Benefit Research Institute (EBRI), December 2010 (10-year projection); October 2013 (2013
data). Calculations are based on a 90% chance of covering out-of-pocket health expenses in retirement.
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.
Our calculations also take into account mortality rates for a variety of commonly diagnosed health conditions, including high blood pressure, high
cholesterol, type 2 diabetes, cancer of any type, and cardiovascular disease of any type apart from high blood pressure. In addition, the model also takes
into account the consistent use of tobacco on a household basis.
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 our 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 Retail Management
282576 11/13