Putnam Investments released a survey Thursday measuring the success of its Lifetime Income Analysis Tool and found that over one-third of 401(k) participants who use the tool changed their deferral rate. Of those, 80% increased their savings rate. The average increase in savings rate was 23%.
The Lifetime Income Analysis Tool shows workers how much monthly income their savings will provide in retirement, and helps them determine if they're on track to maintain their current standard of living once they retire. It was launched in January 2010.
Workers are facing two big challenges in retirement, according to Ed Murphy (left), head of defined contribution for Putnam Investments. "One is inadequate savings, but workers don't clearly understand how savings translate into income in retirement," Murphy told AdvisorOne on Friday.
"We need to change the mindset; we call it the retirement income challenge. We need to change workers' mindset and perspective to help them get the most value from retirement. They need to shift from thinking about savings to thinking about monthly income," Murphy said.
To help with that shift, he said, the defined-contribution participant website was purposely designed so that when workers log in they see how much they will get each month after they retire, rather than the entire amount of their savings.
"We're showing them retirement through a lens they're familiar with," Murphy said. And it seems to be working. "We've already seen a shift in behavior; we let them model scenarios and see the tradeoff of their actions."
Murphy was optimistic about the company's efforts. "It's still the early days, but we're seeing the needle move and getting workers to take action."
“The challenge that working Americans face to save for successful retirements has never been greater,” Robert Reynolds (left), Putnam CEO, said in a statement. “And there’s a huge gap between the way people hope or expect to live in retirement and how they’re actually saving to reach their goals. One of the most powerful ways to close that gap is to first show defined contribution savers how far along they are towards reaching the monthly income they will need once they stop working – and then let them take immediate action to improve their prospects."