NEW YORK -- Online retirement calculators are usually so confusing or overwhelming that the average plan participant logs in, checks their account balance and then logs off without making any changes. Putnam Investments has developed a new retirement income twist it hopes will resonate with investors, plan sponsors and financial advisers.
"Complexity leads to inactivity," said Edmund Murphy, managing director and head of defined contribution at Putnam, at a presentation at the Four Seasons Hotel last week. "Participants find it hard to see how their balance turns into retirement income. They are told they need to save millions, and they just give up and turn off instead."
The new Putnam Lifetime Income Analysis Tool is a simple, easy-to-use online calculator that uses sliding bars to show participants how much a savings increase or decrease of as little as 1% can have on their future monthly retirement income. Choose a later year to retire or different asset allocation, and that is reflected on future income, too.
"We are putting the focus on how incremental, achievable changes can lead to results over time," Murphy said. The aim is to break retirement savings into small steps and to direct investors' eyes to the retirement income prize, Putnam executives explained.
The site also allows participants to change their contribution rate in as few as three clicks, without having to enter any extra data or navigate a complicated menu of choices. As one speaker noted, it's 21 steps at other 401(k) websites.
"This is a completely new approach to lifetime income planning that we hope will drive a revolution and serve as a new lens through which to view workplace savings," said Putnam President and CEO Robert L. Reynolds. "We are seeking to reframe the conventional mindset from inputs to outcomes, from accumulating assets to measuring the income-generating potential of a retirement plan."
The new platform, which uses Monte Carlo simulations, will initially be available to 401(k) plans that Putnam administers, with a roll out to financial advisers in three months, said Jeffrey Carney, senior managing director and head of global marketing, products and retirement at Putnam.
Putnam offered a preview of the platform to journalists, plan sponsors, financial advisers and consultants at last week's presentation. Lee Kowarski, a principal at consulting firm kasina, was impressed by how user-friendly the platform appeared. "It's crucial to provide users with a simpler experience," Kowarski said. The Lifetime Income Analysis Tool is "an easy-to-use website; it's clean, slick and provides a fresh user experience. I liked how the platform allows users to slide to a 100% equity allocation, but when they do, it often makes the end amount go down, because it introduces risk."
The platform facilitates incremental changes and doesn't pressure participants to contribute the maximum, Kowarski added.
"This type of platform will make it easier for participants and more likely that they will use these tools to manage their account, versus calling in, which should help firms keep costs down," Kowarski said.
"It's just so much easier to use than anything else out there," said Claudia Fogelin, managing partner at Interactive Communications, a New York-based sales consulting firm. Fogelin said the new platform's simple, modern look will make it much easier for advisers to sell Putnam's 401(k) plans to sponsors.
Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, said 401(k) plan participants are often discouraged by the amount of personal data they are required to input in traditional retirement income calculators and the number of clicks needed to make changes.
Many companies provide income analysis tools online, but participants seldom find them if they are more than a click or two from the main home page.
Salisbury said the ability for participants to change their contributions with two or three clicks could make a huge difference in changing investor inertia, but "even if we modify the system so these options are available, there is still a tremendous challenge of having individuals make the right choices."
A recent EBRI report said Americans will face a shortfall in retirement savings of hundreds of billions of dollars by 2020 and may be unable to pay for essential needs like food, clothing and shelter. "That is a very ugly scenario that is not very far off, which is why we are making 2010 the year we are going to work to strengthen all retirement savings, both public and private, and why we are bringing this revolutionary new view to the market," Reynolds said.
"Investors need a clearer picture of how much income they will need in retirement," Carney said. "The majority of them still don't have a formal plan, and they don't know where to go for help."
A key challenge for the industry will be getting investors to translate their years of asset accumulation into monthly income in retirement, he said. Most investors have little sense of how much money they will need, and some think they should slow their savings once they reach $100,000 in assets.
The fund industry can help by changing its approach to closer resemble that of pension-style defined benefit plans, which show investors how much they'll get in retirement, not how big their balance is, Carney said.
"We need to create a whole new view of retirement savings that is focused on income through the distribution phase," Reynolds said. "The Holy Grail of retirement income solutions will be a lifelong allocation glidepath that blends absolute-return strategies, traditional strategies and an annuity or annuity-type product to provide or replicate guaranteed, lifetime income."
Reynolds said Putnam is working with its sister company Great-West Life & Annuity Insurance to develop its own annuity for 401(k)s as well as funds that combine relative-return and absolute-return strategies. Putnam will announce these new products later this year.
As of Dec. 31, 2009, Putnam had $115 billion in assets under management.
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