PUTNAM INVESTMENTS | putnam.comIn 2011, Putnam Investments, in partnership with Brightwork Partners,introduced the Lifetime Income ScoreSM(LIS), a tool for helping householdsestimate the level of income that they are currently on track to replace inretirement. Scores incorporated numerous variables related to earningsthrough employment, as well as financial behavior and confidence in financialdecision making. The result is a tool that Americans can use — even early intheir careers — to begin measuring their progress toward seeking a financiallysecure retirement.Now in its third year, our survey compiles data provided by 4,089 workingadults between the ages of 18 and 65. This survey was conducted onlinebetween December 7, 2012, and January 4, 2013, and results are weightedaccording to U.S. Census parameters. Once again, our research supportsseveral key hypotheses: first, that factors like access to workplace retire-ment savings plans and higher deferral rates have an enormous impact onretirement preparedness. Second, our research suggests that having a paidfinancial advisor can appreciably influence investor confidence and LifetimeIncome Scores. Third, our data lend support to the idea that achieving retire-ment preparedness is fundamentally a behavioral issue. Although income andinvestable assets tend to correlate with retirement preparedness, even lower-income households that make a habit of saving can get on track to beingfinancially prepared for the future.An overview of retirement preparednessResults from our survey this year show that working Americans are on trackto replace 61% of their household income in retirement. As in prior years,our research indicates that the least well prepared tend to be older and lesswell educated, while the better prepared tend to be younger and male. LISdifferences along age and gender lines have consistently emerged in our dataover the last three years of our survey. That the better prepared tend to beyounger — i.e., under the age of 50 — may be due to the fact that being in aworkplace savings plan longer enhances one’s ability to prepare for retirement.April 2013 » PerspectivesLifetime Income Scores III:Our latest assessment of retirementpreparedness in the United StatesW. Van Harlow, Ph.D., CFADirector, Investment Retirement Solutions• Working Americans areon track to replace 61% oftheir household income inretirement.• Deferring 10% or moreto a workplace savingsplan and using a financialadvisor continue to have amajor impact on retirementpreparedness.• Confidence data uncoveredby our research indicate thepossibility for a virtuouscircle of plan eligibility,participation, savingsbehavior, and retirementpreparedness.• The Lifetime Income Scoreaccounts for a variety ofcritical financial factors,including home ownership,business value, andinheritance — and now, forthe first time, mortalityrates associated with avariety of common healthconditions.Keytakeaways
APRIL 2013 | Lifetime Income Scores III: Our latest assessment of retirement preparedness in the United States2Our data also show that the better prepared frequently have afinancial advisor — 39% of those in the top LIS segments (scoring 100or more) report having an advisor — while total household income andinvestable assets both tend to rise along with Lifetime Income Scores.The top two quartiles of LIS, for example, earn a median of $85,000and $75,000, respectively, per year by household and have medianinvestable assets of $221,000 and $81,000, respectively.Importantly, however, our research indicates that being preparedfor retirement is not solely a function of “having more money,”whether in terms of income or investable assets. When we take acloser look at the LIS distribution by household income, 15% of allhouseholds earning less than $50,000 per year manage to achievea LIS over 100% — an encouraging point to discover (Figure 1).While the role of Social Security cannot be ignored for virtually anyincome level, high scores are achieved by individuals across theincome spectrum, a fact that we believe highlights the significance ofconsistent saving behavior.Figure 1. Lifetime Income Scores were relativelyinsensitive to household income levelsTotal < $50K$50K to$100K$100K to< $175K $175K+Under 45 31% 38% 27% 31% 30%45 to < 65 23 22 28 18 1565 to < 100 23 25 21 25 21100+ 23 15 24 27 35Net under 75 62 68 63 58 52Net 75+ 38 32 37 43 48Median LIS 61 55 60 67 73Percentages in each column indicate incidence among respondents.Key drivers of retirement preparednessOur latest survey data indicate once again that some factors mattermore than others on the path toward retirement preparedness. Impor-tantly, the factors that arguably matter most are things that plansponsors, investment managers, financial advisors, and policymakerscan substantially influence, whether through the crafting of betterpolicy, the implementation of better plan design, the distribution ofmore robust education, or a combination of these elements. Otherfactors, such as home ownership, business value, and expectation ofan inheritance, have a modest effect (5 points) on the total, aggregateLifetime Income Scores for working Americans. Generally speaking,though, these factors are dwarfed in significance by factors that bearon qualified-plan access, deferral rates, and the use of an advisor.Our newly expanded formulafor Lifetime Income ScoresSince 2011, we have continually soughtto broaden the scope of our researchto better educate individuals aboutthe realities of retirement planning andassist plan sponsors in the developmentof more effective plan design. Thisyear, in addition to including factorssuch as home equity, business value,and inheritance in the calculation ofLifetime Income Scores, we have addednew inputs to reflect a range of healthconditions commonly experienced byretirees.To look at retirement withoutcontemplating the prevalence ofthese health conditions, we felt, risksmissing critical financial and personalaspects of retirement. For this reason,we revised our model to includemortality rates associated with variouschronic conditions, including highblood pressure, high cholesterol, type2 diabetes, cancer of any type, andcardiovascular disease of any typeapart from high blood pressure. Inthis way, we increased the robustnessof our methodology for calculatingLifetime Income Scores and, webelieve, enhanced the effectivenessand educational impact of our LifetimeIncomeSMAnalysis Tool.
PUTNAM INVESTMENTS | putnam.com3Employer plan eligibilityOur survey data continue to demonstrate that employer-sponsored plan access is a critical component in workers’pursuit of retirement security. In our latest research, themedian LIS jumps from 41 for non-eligible workers to 73for workers who enjoy plan access. That number risesfurther — to 76 — for households that are eligible toparticipate in a defined contribution (DC) savings plan.The significance of plan eligibility is particularly clearwhen we compare the median LIS for workers who areeligible but not active (54) with the median for thosewho are active (79). These data strongly support ourconclusion that eligibility for participation in a retirementplan — especially a DC plan — is a critical factor in boostingone’s ability to prepare financially for retirement.Analyzing the demographic composition of plan-eligible workers, we sought to identify the ways in whichthose who are eligible vary from those who are not.Interestingly, the key points of difference do not residewith age or gender but rather with education and levelof investable assets. Nearly 50% of households that arenot eligible to participate in an employer-sponsoredplan have received formal education equivalent to ahigh school diploma or lower. Meanwhile, more than65% of households that are eligible to participate inemployer-sponsored plans have had at least some collegeexperience. As for investable assets, households thatare eligible to participate in an employer-sponsored planfind their median investable assets at $90,000, whilenon-eligible households struggle with median investableassets at only $5,000. Clearly, eligibility lines break acrosslevels of education and accumulated wealth. Also, as wefound in our previous year’s study, eligibility continues tovary widely by industry of employment and yet it consis-tently has a major impact on the median LIS (Figure 2).In this year’s survey, we collected data on individuals’confidence with respect to their knowledge and comfortwith various aspects of retirement planning. Importantly,eligibility — which we know opens the door to education,participation, and higher levels of preparedness overall —appears to have a clear impact on investors’ confidence(Figure 3). In short, investors who are plan-eligible feelmore confident about what they know, what they need todo, and how much retirement will cost in the long run. Wewould suggest that elevated levels of confidence can havea decisive impact on savings behavior, and thus go a longway toward better preparing Americans for retirement.Figure 2. Lifetime Income Scores by industry and plan eligibilityn Total n Eligible n Not eligible767272656259585855525087818074707270668073614045383643404141424040Financial industry (6%)Information (5%)Educational services (8%)Public administration (7%)Manufacturing (10%)Trade, transportation, and utilities (14%)Professional business services (16%)Health care and social assistance (11%)Leisure and hospitality (7%)Construction (7%)Other services (7%)Median scores shown. Percentages next to industry categories indicate incidence among respondents.
APRIL 2013 | Lifetime Income Scores III: Our latest assessment of retirement preparedness in the United States4Figure 3. Plan eligibility (by household(HH)) can enhance retirement confidenceConfidence levels with different aspects of retirement — points above or below “very or somewhat confident”HH not eligible for employer planHH eligible for employer planKnowing how muchmoney you will need forhealth-care expensesin retirementBeing able to counton receiving yourfull Social Securitybeneﬁts in retirementKnowing how you willcover health-careexpenses in retirementKnowing how muchmoney you willneed for retirementBeing ready forretirement ﬁnancially-8 -8-5 -3-1353 32 2The importance of a financial advisorInvestors’ decision to use or not use a financialadvisor continued to have a sizable impact onLifetime Income Scores. Those who worked witha paid advisor had a median LIS of 80 while thosewho did not had a median LIS of 56 (Figure 4).Not surprisingly, those who have an advisor tendto have higher household income levels as wellas higher investable assets. However when weneutralize all other key factors, from householdincome and investable assets to savings rates anddemographics, having an advisor raises the LISby 9.6 points.Figure 4. Using an advisor boostedLifetime Income ScoresMedian Lifetime Income Scoresby advised/non-advisedDo not have apaid advisorHave a paidadvisorTotal615680Using an advisor provides an even more significantboost to investor confidence than did plan eligibility(Figure 5). Those who have an advisor exhibit a 21-pointadvantage relative to the average respondent whenasked whether they feel confident about being ready forretirement. By contrast, those who do not use an advisorbetray a 6-point disadvantage relative to the averagerespondent.
PUTNAM INVESTMENTS | putnam.com5In response to the question of knowing how they willcover health-care costs in retirement, the advised showa 17-point advantage relative to the average, while theunadvised exhibit a 5-point disadvantage. Clearly, havingan advisor contributes to investor confidence and mayconfer a potential advantage in terms of engenderingpositive financial behaviors.The beneficial effects of a paid advisor carry over tothe confidence of DC plan participants in terms of howthey allocate their retirement assets. Indeed, those whohave an advisor enjoy a 9-point advantage relative to theaverage respondent when asked how confident they arewith the way they have allocated assets among stocks,bonds, and cash (Figure 6).Figure 6. Advised DC participants had greaterasset allocation confidence than non-advisedparticipantsConfidence levels with different aspects ofretirement — points above or below “very confident”Do not have a paid advisorHave a paid advisorThe amount ofmoney that youare contributingThe investmentsyou have selectedThe way you haveyour assets allocatedamong stocks,bonds, and cash9-4-3 -387Figure 5. Advisors can enhance retirement confidenceConfidence levels with different aspects of retirement — points above or below “very or somewhat confident”Do not have a paid advisorHave a paid advisorKnowing how muchmoney you will needfor health-careexpenses in retirementBeing able to counton receiving your fullSocial Security beneﬁtsin retirementKnowing how youwill cover health-care expenses in retirementKnowing how much money you will needfor retirementBeing ready forretirement ﬁnancially-5 -5 -5-3-6211715 1511
APRIL 2013 | Lifetime Income Scores III: Our latest assessment of retirement preparedness in the United States6Active participation in workplace savings plansArguably the most important factor in the determinationof retirement preparedness is financial behavior — specifi-cally, the propensity to save. Looking across deferral ratesin workplace savings plans, households that defer 10% ormore of their income to retirement savings are on track toreplace 106% of pre-retirement income, and scores jumpto 121% when deferral rates reach 15% or more (Figure 7).Notably, plans that set up auto-deferral rates in the rangeof 4% to 6% can expect their participants’ median LIS tofall above the overall median of 61, but possibly only by amodest amount.Figure 7. Deferral rates can have a radicalimpact on Lifetime Income Scores15%+(7%)10%+(17%)8% to< 10%(6%)6% to< 8%(8%)4% to< 6%(10%)0.01%< 4%(14%)0%(5%)Total614859687888106121Our data reveal that eligible non-participants aregenerally older than those who actively contribute to theirretirement plans. In addition, we found that participantswho tend to defer more of their income (10%+) also havea paid advisor, while deferral rates themselves are notparticularly sensitive to level of household income.Total savings ratesIn addition to tracking data on workplace savings, oursurvey captures a more comprehensive view of householdsavings that includes non-plan-related savings activity.Looking back over the past three years of collected data,we observe that average savings rates have erodedslightly over the past year (Figure 8), quite possiblybecause economic uncertainty at home and abroad hascontinued to weigh on working Americans.Figure 8. Total savings rates have fluctuated,but lately have eroded20132012201112.1%LIS study year of publication14.2%13.1%Health careOur research continues to suggest that the majorityof households are feeling more concerned about theeconomy and their investment prospects. More than 50%of respondents expect inflation will rise in the year ahead,and about a third of workers expect unemployment willrise nationally. Once again, the largest area of uncertaintypertains to health care. More than 60% of all respondentsexpect out-of-pocket health-care costs will rise in the nextyear, and 21% (versus 18% in the previous year’s survey)expect these costs will rise substantially (Figure 9).For the second year in a row, we sought to determinethe level of interest in planning tools that could bringclarity to workers over the question of health-care costs.Specifically, we gauged the level of workers’ interest in aplanning tool that could help estimate these expenses andaccommodate them in retirement planning. We found thata majority of workers — 60%, which matches the previousyear’s result — would be interested in such a tool, with 13%of all respondents expressing strong interest.
PUTNAM INVESTMENTS | putnam.com7Significantly, the most prepared for retirement (withscores greater than 100) expressed the strongest level ofinterest in a health-care planning tool (Figure 10). In effect,those who know the most about planning and saving forretirement similarly want to know more about how theycan plan to cover health-care costs in their later years.The health-care question is of particular importancefor those who plan to retire prior to becoming eligiblefor Medicare, as the prevalence of employer-sponsoredhealth-care coverage for retirees has declineddramatically in recent years. Among large, private-sectoremployers (200 or more employees), only 26% offeredretiree health benefits in 2011, which was down from 28%in 2009 and 66% in 1988.11 “2011 Employer Health Benefits Survey,” Kaiser FamilyFoundation and Health Research & Educational Trust (HRET),http://ehbs.kff.org/pdf/2011/8225.pdf.Figure 9. Economic expectationsTwelve-month forward expectations for economic indicators relative to present levelsThe stock marketHome values in your areaLong-term interest ratesThe unemployment rate in your areaThe unemployment rate nationallyInﬂationHealth-care costs that you payMuch lower Somewhat lower Same Somewhat higher Much higher1%6% 37% 41% 14%2%3% 24% 44% 20% 10%4% 14% 47% 31% 4%6% 19% 44% 28% 3%3% 11% 53% 28% 6%3% 25% 38% 23% 12%6% 31% 41% 21%Due to rounding, results may not equal 100%.Figure 10. Interest in health-care planning toolsInterest in tools to help estimate out-of-pocket health-care expenses and plan accordingly, by LIS rangeTotal 0 to < 45 45 to < 65 65 to < 100 100 or more Net < 75Net 75 ormoreNet: Interested 61% 51% 61% 65% 69% 57% 67%Very interested 13 10 10 14 21 10 19Somewhat interested 47 41 51 51 49 46 49Not very interested 23 24 25 23 19 24 21Not interested at all 17 25 14 12 12 19 12Net: Not interested 40 49 39 35 31 43 33Percentages indicate incidence among respondents.
APRIL 2013 | Lifetime Income Scores III: Our latest assessment of retirement preparedness in the United States8Auto plan featuresOur survey now includes data on automatic plan featuressuch as auto enrollment and auto escalation of deferralrates. Overall, these features of plan design, whichhave increasingly been adopted since the passage ofthe Pension Protection Act in 2006, had a substantiallypositive effect on Lifetime Income Scores.Auto enrollmentAmong respondents who are eligible to participate in a401(k) plan, the majority (67%) reported having to opt into their plan. Whether one is auto enrolled or opts in doeshave an impact on the LIS. Indeed, our data confirm astark difference: The median LIS for auto-enrolled 401(k)participants was 91 versus 73 for workers who opted in.Our survey data also suggest that this difference isnot income sensitive, nor is it sensitive to the amount ofworkers’ investable assets. We did find, however, thatexpected DC plan deferral rates for auto-enrolled workerswere modestly higher (mean deferral rate of 9%) thandeferral rates for workers who opted in (mean deferralrate of 8%). And perhaps most importantly, we found thatauto enrollment appears to have a substantial impact onworkers’ attitudes toward their future, as auto-enrolledparticipants claim to be more secure with their progresstoward retirement and future ability to meet expenses(Figure 11). Clearly, auto enrollment can have a palpableimpact on retirement security for many Americans, andthe large difference in LIS, which is generally insensitive toincome tiers (Figure 12), may indeed come down to behav-ioral factors aided by plan design.Figure 11. Auto-enrolled participants were more confidentConfidence levels with different aspects of retirement — points above or below “very or somewhat confident”Opted inAuto enrolled0430-114 1413109Knowing how muchmoney you will needfor health-careexpenses in retirementBeing able to counton receiving your fullSocial Security beneﬁtsin retirementKnowing how youwill cover health-care expenses in retirementKnowing how much money you will needfor retirementBeing ready forretirement ﬁnanciallyFigure 12. LIS generally insensitive to householdincome levels for both auto-enrolled and opt-in participantsOpted-inAuto enrolled$100K+< $100K$175K+$100K to < $175K$50K to < $100K< $50KTotal by auto enrollment 91% 73%95% 72%88% 72%83% 76%96% 85%95% 72%87% 78%Median LIS: all workers = 61; active DC plan participants = 79.
PUTNAM INVESTMENTS | putnam.com9Auto escalationOur survey data have a similarly positive story to tellwith regard to the impact of auto escalation features onworkers’ retirement preparedness. For those whose plansinclude this feature, the positive impact on median LISscores is as powerful — if not more so — as that of autoenrollment.Workers whose plans offer auto escalation had amedian LIS of 95, versus 74 for workers who do not enjoythis feature. Also as with auto enrollment, the positiveimpact of auto escalation was detected across all incometiers. What’s more, mean expected deferral rates forworkers with auto escalation (10%) were appreciablyhigher than rates for workers who do not have this featurein their plan (8%), which further underscores the power ofmodern plan design to bolster retirement preparedness.The attitudinal impact of auto escalation is a factorworth exploring further, particularly for fiduciaries thatare considering the pros and cons of incorporating thistype of feature into their plan. According to our surveydata, the aggregate psychological and behavioral impactof auto escalation is quite positive. Indeed, participantswhose plans include this feature report on it, almostuniformly, as having beneficial effects. At once reassuringand additive to their knowledge of how to go about savingsuccessfully for retirement, auto escalation features cangive a substantial boost to workers’ confidence and senseof financial well-being (Figure 13).Figure 13. Plan participants with auto-escalation were more confident about retirementConfidence levels with different aspects of retirement — points above or below “very or somewhat confident”No auto escalationHave auto escalationKnowing how muchmoney you will needfor health-careexpenses in retirementBeing able to counton receiving your fullSocial Security beneﬁtsin retirementKnowing how youwill cover health-care expenses in retirementKnowing how much money you will needfor retirementBeing ready forretirement ﬁnancially0-243-21917161511
APRIL 2013 | Lifetime Income Scores III: Our latest assessment of retirement preparedness in the United States10Types of funds ownedIn our latest survey, we collected data on the propor-tion of DC plan participants who have allocated assets totarget- risk and target-date funds in their retirement port-folios. As with auto escalation features, which receivedpolicy backing by the PPA, target-risk and target-datefunds have received increasingly wide acceptance asQDIAs (qualified default investment alternatives) as retire-ment policy has evolved. Among survey respondents,those who are DC plan-eligible and have a DC plan balance(44% of our base), decisive majorities have made someallocation of assets to these specialty products (Figure 14).Figure 14. Prevalence of asset allocation fundsWhen asked what percentage of plan balance washeld in:Target-date fundsTarget-risk fundsNone11%Any 83%Don’tknow7%None21%Any 67%Don’tknow12%Base: Participants who are eligible to contribute and have a balance in aDC plan (44% of respondents).Target-risk and target-date fundsImportantly for plan participants and sponsors alike, LISgenerally were higher among participants who employthese investment vehicles. The median LIS for indi-viduals who have any allocation to target-risk funds is84, substantially higher than our survey’s median LIS of61. Individuals who take advantage of these funds typi-cally have higher levels of household income (median of$85,000) and higher levels of investable assets (medianof $136,000). Similarly, the median LIS for DC plan partici-pants who have allocated a portion of their portfolio totarget-date funds is 87. The same pattern with respect toincome and investable assets holds for target-date fundsas for target-risk funds.Asset allocationGenerally speaking, households have heavily allocatedtheir retirement assets to conservative investments,with an emphasis on cash. Unfortunately, but not toosurprisingly given the prevailing economic uncertaintyand perception of market volatility, investors have steadilyput more of their assets into cash investments and asmaller proportion of their assets into stocks and stockmutual funds (Figure 15).Within qualified plans, a revealing detail appears in acomparison of self-directed and professionally advisedportfolios. Advised portfolios were more heavily weightedto equities and fixed income, while non-advised portfolioshad a pronounced bias toward cash (Figure 16).Figure 15. Asset allocation within employer-sponsored plansStock or stock mutual fundsBonds or bond mutual fundsCash, money market mutual funds, or other cash equivalents201120122013 55% 15% 30%52% 15% 32%43% 18% 39%Mean asset proportions by household. Due to rounding, results may not equal 100%.
PUTNAM INVESTMENTS | putnam.com11Figure 16. Advised-plans’ asset allocation hadlower cash and higher equity exposureMean percentages of household assets in employer-sponsored retirement plansNot advisedAdvisedCash,money marketmutual funds,or other cashequivalents60%Stockor stockmutual funds27%Stockor stockmutual funds40%Bonds orbond mutualfunds 21%Bonds orbond mutualfunds 13%Cash,money marketmutual funds,or other cashequivalents39%This has important implications for retirement savings,as investors who opt for the sidelines of cash — which hasgenerated very low income for investors over the pastthree years due to prevailing low interest rates — maysignificantly limit their ability to capture the upside poten-tial of equity market rallies.ConclusionIn our latest study, we enriched the LIS by folding in retire-ment income associated with home equity, businessownership, and inheritance. In addition, we recalibratedour methodology to accommodate mortality expecta-tions associated with five chronic health conditions plustobacco use. With this new methodological foundation,we believe we have created a useful and highly accuratetool for assessing retirement preparedness today.Our latest study reveals much about the psychologicaland behavioral dynamics of retirement saving. Notably,our study took place against a backdrop of improvingeconomic expectations, but these did not appear to havetranslated into retirement confidence. While workerslargely expect economic growth rather than recessionin the year ahead and feel more secure in their jobs, forexample, majorities lack confidence in the major aspectsof retirement planning.Importantly, our study found that thebest-prepared — and most confident — workerstend to enjoy better workplace savings plan accessand participate more actively in their plans. We alsofound that using an advisor has a material impacton the median LIS. For plan sponsors consideringdifferent aspects of plan design, we believe ourstudy provides strong evidence to support the“automation” of workplace savings programs —from auto-enrollment to auto-escalation — as thesefeatures clearly correlate highly with improvedretirement preparedness.Survey methodology•4,089 working adults, age 18 to 65•Conducted online, 12/7/12–1/4/13•Weighted to Census parameters for all working adultsFor Lifetime Income Score, the following applies:IMPORTANT: The projections, or other informationgenerated by the Lifetime Income Score regardingthe likelihood of various investment outcomes, arehypothetical in nature. They do not reflect actual invest-ment results and are not guarantees of future results.The results may vary with each use and over time.The Putnam Lifetime Income ScoreSMrepresents anestimate of the percentage of current income that anindividual might need to replace from savings in orderto fund retirement expenses. For example, consider anindividual, 45 years old, with an income of $100,000 peryear. A Lifetime Income Score of 65% indicates that theindividual is on track to be able to generate $65,000 inretirement income (in today’s dollars), i.e., 65% of currentincome. This income estimate is based on the individual’samount of current savings as well as future contributionsto savings (as provided by participants in the survey)and includes investments in 401(k) plans, IRAs, taxableaccounts, variable annuities, cash value of life insurance,and income from defined benefit pension plans. It alsoincludes future wage growth from present age (e.g., 45)to the retirement age of 65 (1% greater than the ConsumerPrice Index for Urban Wage Earners and Clerical Workers(CPI-W)) as well an estimate for future Social Securitybenefits.
APRIL 2013 | Lifetime Income Scores III: Our latest assessment of retirement preparedness in the United StatesPutnam Investments | One Post Office Square | Boston, MA 02109 | putnam.comPutnam Retail ManagementDC939 280859 4/13Beginning with this year’s survey, our calculation also takesinto account mortality rates for a variety of commonlydiagnosed health conditions, including high blood pressure,high cholesterol, type 2 diabetes, cancer of any type, andcardiovascular disease of any type apart from high bloodpressure. In addition, the model also takes into account theconsistent use of tobacco on a household basis.The Lifetime Income Score estimate is derived from thepresent value discounting of the future cash flows associ-ated with an individual’s retirement savings and expenses.It incorporates the uncertainty around investment returns(consistent with historical return volatility) as well as themortality uncertainty that creates a retirement horizonof indeterminate length. Specifically, the Lifetime IncomeScore procedure begins with the selection of a presentvalue discount rate based on the individual’s currentretirement asset allocation (stocks, bonds, and cash). Arate is determined from historical returns such that 90%of the empirical observations of the returns associatedwith the asset allocation are greater than the selecteddiscount rate. This rate is then used for all discounting ofthe survival probability-weighted cash flows to derive apresent value of a retirement plan.Alternative spending levels in retirement are examined inconjunction with our discounting process until the presentvalue of cash flows is exactly zero. The spending levelthat generates a zero retirement plan present value is theincome estimate selected as the basis for the LifetimeIncome Score. In other words, it is an income level that isconsistent with a 90% confidence in funding retirement. Itis viewed as a “sustainable” spending level and one that isan appropriate benchmark for retirement planning.The survey is not a prediction, and results may be higheror lower based on actual market returns.For Lifetime Income Analysis Tool, the following applies:IMPORTANT: The projections, or other information gener-ated by the Lifetime Income Analysis Tool regarding thelikelihood of various investment outcomes, are hypothet-ical in nature. They do not reflect actual investment resultsand are not guarantees of future results. The results mayvary with each use and over time. The analyses present thelikelihood of various investment outcomes if certain invest-ment strategies or styles are undertaken, thereby servingas an additional resource to investors in the evaluation ofthe potential risks and returns of investment choices.Each simulation takes into account the participant’scurrent plan balance and investment mix, as well as his orher age, income, retirement date, contribution rate, likelyfuture savings, and estimated Social Security benefit. Thetool runs over 50 billion market simulations to providean estimate of a monthly income likely to be generatedat retirement. The Lifetime Income Analysis Tool is aninteractive investment tool designed for Putnam 401(k)participants to illustrate the estimated impact of a partici-pant’s plan balances and projected savings on income inretirement. The tool takes into account both before-taxand after-tax accumulated balances and future regularlyscheduled contributions for estimated projections. Itcannot account for dramatic changes in a participant’spersonal situation, including unexpected expenses andother financial situations that may negatively affect one’sestimated monthly income in retirement. You are advisedto consider your other assets, income, investment options,investment time horizon, income tax bracket, and risktolerance when planning for specific investment goals. Itis recommended that you consult a financial advisor formore information. It is important to note that the resultsfrom this tool are estimates based on what you inputtoday. The results are not a guarantee of actual outcomesand will change as your inputs change.Health-care costs and projections are provided byHealthView Services, Inc., a third-party vendor. Theyprovide broad, general estimates and information thatmay help you consider your retirement income needs bybetter understanding potential health-care costs. Thisestimate is provided for educational purposes only, andyou should not rely on it as the primary basis for yourmedical, insurance, investment, financial, retirement, ortax planning decisions. Costs are estimated, hypotheticalin nature, and not guaranteed. Your actual medical costswill likely vary (sometimes significantly) from the esti-mates. Putnam does not believe that HIPAA applies to thedata obtained from plan participants using this new tool.