It may be a no-brainer, but savings behavior continues to be a critical factor in ensuring retirement preparedness. This is according to new research by the Putnam Lifetime Income Score, a survey of 4,000 working Americans. With U.S. households presently on track to replace 65% of their current income in retirement, a slight uptick from the June 2011 report, those best positioned for success have access to workplace savings plans, and proceed to defer 10% or more of their income.
While the study highlighted several key success factors, total household savings continued to be a critical determinant of retirement preparedness. Households that were best prepared have a total household retirement savings rate of 27.4%, while those least prepared (0% to <45%) had total household retirement savings rates of only 5.1%.
"While this year's Putnam Lifetime Income Score research provides a number of reasons to be optimistic about the ability of working Americans to take the fate of their retirement security into their own hands, it also underscores the work that still needs to be done by the industry and policy makers to preserve and strengthen our country's retirement system," says Edmund F. Murphy III, head of defined contribution at Putnam Investments.
Lifetime Income Scores varied significantly for those who processed a financial plan versus individuals who did not. Eligibility for workplace retirement plans varies by industry and drives Lifetime Income Scores to a large extent. Plan-eligible workers in information services had the highest Lifetime Income Score. Plan-ineligible workers across all industries had the lowest score
Speaking at a retirement security forum in Washington, D.C., earlier this month, sponsored by the Financial Services Roundtable, Putnam Investments President and CEO Robert L. Reynolds said that, "America's retirement saving challenge is real and urgent. The Putnam Lifetime Income Score analysis suggests the need for a robust workplace savings system that covers nearly all working Americans and raises the national savings rate. Additionally, a solvent Social Security system could ensure a strong safety net for low-income Americans and a valuable base even for the more affluent.
