“Seven thousand baby boomers are turning 65 every day, and will be doing so every day for the next 17 years,” Putnam Investments President and CEO Bob Reynolds told advisors in his keynote presentation at the 4th annual Retirement Income Symposium Oct. 17 in Boston, which was sponsored by AdvisorOne and its sister publications at Summit Business Media’s Investment Advisor Group. The challenge will be closing the “assured income gap” they are beginning to face.
Two-thirds of retirement income now comes from sources that future retirees won’t be able to count on, Reynolds (left) pointed out. Defined benefit (DB) plans are disappearing in the private sector and are under pressure in the government sector, while Social Security benefits are likely to shrink, especially for higher-income beneficiaries. Defined contribution (DC) plans will be the primary source of retirement income, but hardly any of them offer assured-income features. “Not yet,” he added.
With retirement security increasingly dependent on personal savings, Reynolds said, an initial policy goal should be making workplace savings plans accessible to more Americans. Today, such plans are available to only half of U.S. workers.
In a Brightwork Partners survey of nearly 3,300 working Americans, Putnam found that workers who were best prepared for retirement (on track to replace 100% or more of their current income) differed from those who were least prepared (likely to replace 45% or less) not in how much they earned, but in having access to an employer savings plan and saving 10% or more of their income.
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Reynolds, who led Fidelity Investments into the 401(k) market in 1989, would improve savings plan access by making Universal IRAs mandatory for companies with 10 or more employees. Workers would be enrolled unless they opt out. Requiring this “negative option” in all DC plans would boost participation, the second goal he identified.
He defined the third policy goal as encouraging deferrals of 10% or more. Putnam believes this savings rate, in tandem with Social Security, will provide workers with what they need in retirement. The default deferral of 3% of income, Reynolds said, is “much, much too low” to fund a secure future.
Putnam addresses this issue by promoting “impulse saving” whenever a Putnam-provided retirement plan participant logs onto its website. (Putnam has also created a free iPhone app to encourage investors to save more for retirement.) The first screen they see gives an estimate of the income they’ll need in retirement and urges them to review their current contribution level, asset allocation, and retirement age to be more confident of making that number.