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The recession that we are now starting to come out of has caused many retirees and baby boomers on the verge of retirement to finally focus on the prospect of facing a shortfalls of hundreds of billions of dollars in retirement savings. So according to one investment management firm, what is the ultimate success metric for retirement plans going forward?

Introduction:

Retirement solutions for many Defined Contribution (‘DC’) plans is undergoing a huge product shift, away from focusing on asset accumulation and towards managing the distribution phase. One firm that is bringing a mix of products to help retirement plan participants is Putnam Investments, who has taken a three-pronged product approach.

A Definition of Retirement Plan Success:

Participants in retirement plans are going to require a number of factors in order to meet their savings and distribution goals:

• • • • • Continued use of equity products to earn returns over an ever increasing lifespan that outpaces inflation
        • Lowered volatility of investment returns
        • Solutions focused on the distribution phase and well into retirement that provide for a income stream

A mix of three product solutions from Putnam Investment attempts to address each of the factors above.

1. Target Date Funds with an Absolute Return component.
   By incorporating absolute return strategies in a target-date mutual fund glide path, Putnam modifies the fund’s asset allocation  to an increasing share of absolute return strategies as retirement date approaches




2. Absolute Return Funds.
   Putnam aims to minimize the fluctuation of returns by seeking to deliver real returns that are 1%, 3%, 5%, and 7% above inflation, as measured by Treasury bills, measured over a running three-year average




3. Retirement income/Lifetime retirement income funds.
   Mixes traditional equity target date approaches with a component such as annuities or non-annuity assured income funds that aim to replace a portion of pre-retirement income

At the current time, it appears that only the Target Date with Absolute Return and straight Absolute Return funds are available. What will be interesting is how Putnam introduces their Lifetime retirement income funds so that plan participants do not have to blend the products on their own and choose when the appropriate time is to modify their asset allocation.

According to Robert L. Reynolds, the President and Chief Executive Officer of Putnam Investments:

…the Holy Grail of retirement solutions … will likely be found in a lifelong product allocation glide path that links higher-risk/high-return investment assets like traditional mutual funds alongside less volatile absolute return strategies, riding on a firm base of assured or guaranteed income products.