The funds will be accompanied by a new planning tool to help advisers and clients create a personalized retirement income strategy.
Jeff Carney, head of Product and Marketing for Putnam, told PLANADVISER that the company feels uniquely positioned by offering three different retirement income solutions with varying levels of risk. The suite consists of Putnam Retirement Income Fund Lifestyle 1, Putnam Retirement Income Fund Lifestyle 2, and Putnam Retirement Income Fund Lifestyle 3. All three funds will integrate absolute return funds, which seek positive returns over a period of three years with less volatility than has been associated with traditional asset classes that have earned similar rates of return.
The “Lifestyle 1” option is the suite’s most conservative fund. This fund previously existed as the “Putnam RetirementReady Maturity Fund,” Carney said, but will now include a combination of Putnam Absolute Return 100, 300, and 500 Funds; Putnam Asset Allocation: Conservative Portfolio; and Putnam Money Market Fund.
The “Lifestyle 2” fund is entirely new. The fund is a moderate retirement income portfolio, and will be based on a combination of Putnam Absolute Return 100, 300, 500 and 700 Funds, domestic and international equity securities, convertible securities, and fixed income securities.
Lastly, the “Lifestyle 3” fund also takes a previous fund, the “Putnam Income Strategies Fund,” and modifies it. It is the most aggressive of the retirement income funds, and will include a combination of Putnam Absolute Return 700 Fund, domestic and international equity securities, convertibles, and fixed income securities. It seeks current income consistent with what Putnam believes to be prudent risk, with a secondary objective of capital appreciation.
The funds will be managed by Jeffrey L. Knight, Putnam’s Head of Global Asset Allocation; Robert J. Kea, a 23-year industry veteran who joined Putnam in 1988; and Robert J. Schoen, a 22-year industry veteran who joined Putnam in 1997. The three funds are expected to be placed in Lipper’s new Retirement Income Category and in Morningstar’s Retirement Income Category.
The suite is designed for investors already in retirement, those who plan to retire in the near future or those who expect to begin withdrawing their invested funds soon. The products can be used as a stand-alone solution or can work in tandem with other retirement income vehicles, Putnam said.
Possibly the most distinctive feature of these retirement income solutions, according to Putnam, is that they are risk-based (known as “lifestyle funds”), rather than based on the target date of retirement (known as “lifecycle funds”). Putnam says the inclusion of absolute return strategies across the suite demonstrates the importance of volatility management throughout the “drawdown” phase of retirement, versus the accumulation phase during a participant’s working years.
“We are seeking to address the breadth of retirees’ ever-changing lifestyle income needs and full range of risk tolerance by offering clear guidance on withdrawal rates that can be adjusted regularly, as markets and their own life circumstances change,” said Robert Reynolds, Putnam's President and Chief Executive Officer since 2008. Reynolds has been promoting Putnam’s absolute return funds since a suite of them were launched in 2010 (see “Putnam CEO Sees Promise in Absolute Return Funds”).
Carney told PLANADVISER that the absence of an insurance component in these liquid funds makes them much more flexible and portable for investors; they can buy into or sell as they wish, he said. He recognized that there is a substantial market for insurance-based products, but these absolute return fund-based income solutions allow people to “dial-up or dial-down the risk” as they see fit.
Customized risk levels and withdrawal rates can be updated whenever an individual’s needs and circumstances change.
The funds will be made available to any retirement plan and will be offered in varying share classes. Carney said that the fees associated with the funds are very competitive, considering the level of sophistication the assets will be managed under.