Guaranteed Income Solutions Take Center Stage

Putnam Investments President and CEO Robert Reynolds spoke on the need to address America’s lifetime income challenge at the recent Retirement Income Industry Association (RIIA) conference in Chicago.

While Reynolds has spent most of his career in leadership positions in the investment management industry, his comments and recent initiatives at Putnam focus on what Reynolds believes should be a golden age for innovation in the area of guaranteed income solutions.  

Reynolds praised the progress that has helped create a more solid foundation for workplace savings in America.  In particular, Reynolds applauds the positive effects of the Pension Protection Act of 2006.  Reynolds believes the nation is closer to addressing the “accumulation challenge” as a result of productive public policy initiatives such as the PPA of 2006 combined with private sector productivity and innovation.

The remainder of Reynolds’ speech focused on the decumulation challenge in the United States.  A summary of select points raised by Reynolds include:

• Key drivers of the decumulation or retirement income challenge include:

1. Longevity risk
2. Sequence of returns risk
3. Inflation risk
4. Structural changes in retirement finance which have decreased the role of traditional guaranteed income sources—namely defined benefit pension plans and Social Security).

• The United States needs a public policy initiative that is analogous to the Pension Protection Act of 2006 to address the decumulation challenge.
• No single solution or one optimal decumulation strategy can be expected to last a lifetime, and Putnam’s Retirement Income Suite reflects this philosophy.
• We should be entering a golden age of activity and innovation with respect to guaranteed income solutions.
• The amazingly powerful concept of an annuity has been tarnished over the years by complexity, hidden fees and marketing tricks.
• Cracking this annuity puzzle and addressing the retirement income challenge at a national level requires two key reforms:

1. Creation of an optional federal insurance charter that is similar to the optional national charter that exists for banks.
2. A new regulatory agency or body (the “Lifetime Income Security Agency” or LISA) to vet the full gamut of retirement income solutions.

• The risks posed by chronic federal deficits are massive and must be addressed.
• Any deficit solution must never impact the incentives that drive personal and workplace savings.