The Putnam Health Cost Estimator provides 401(k) plan participants with a personalized estimate of what portion of their expected future monthly income will be needed to cover health care costs in retirement. The estimator includes itemized insight on medical, dental and pharmaceutical expenses, at different age points.
The projections will be generated from individual participant data and cost models using proprietary, actuarial-based guidelines and expressed as monthly costs, providing participants with a digestible format that lays the groundwork for action steps to address potential savings shortfalls.
“Context is critical, but simplicity is also very, very important,” Stephen Jenks, director of DC product and marketing, Putnam Investments, told PLANADVISER.
The Health Cost Estimator is an enhancement to the Lifetime Income Analysis Tool, rolled out by Putnam in 2010 (see “Putnam Introduces Retirement Income Calculator”). The Analysis Tool is designed to help 401(k) participants project how much income their current retirement savings may generate in retirement compared with what they may need, and offer actionable steps.
The health care enhancement provides:
- An estimation of personalized health care costs, including insurance premiums and out-of-pocket expenses, that reflect preexisting health conditions and future retirement location (by state). The Health Cost Estimator can personalize health care cost estimates by allowing users to input various health states including being a tobacco smoker, or having high blood pressure, type 2 diabetes, high cholesterol, cardiovascular disease and cancer, Jenks explained.
- Actionable methods to help close possible savings gaps, including increasing contribution rate, postponing retirement, and/or changing investment mix; and,
- Projected health care cost for year-one of retirement, but also the percentage of income that may go to health care in that year, as well as guidance on health care costs at different ages during retirement.
The Health Cost Estimator was tested in a pilot program with 30 plans and found that, of the participants using it, 90% made a savings increase—average deferral rates moved from 8% to double digits, Jenks said.
The health care enhancement is valuable to both the participant and the plan sponsor, explained Ed Murphy, head of defined contribution, Putnam Investments. Plan sponsors are concerned that one in four employees say they will have to continue working after 65 because of finances, because this creates extra insurance costs—double the cost of employees ages 45 to 50, Murphy said.
With the Lifetime Income Analysis Tool, coupled with the Health Cost Estimator enhancement, the hope is that employees will engage with it early and save enough to retire. But just offering a retirement income tool to employees is not enough: They must also be encouraged to use it.
Murphy suggests engaging employees during open enrollment meetings. Putnam, for example, distributes iPads at its meetings and walks employees through the Lifetime Income Analysis Tool. “If you can introduce them to the Web in the beginning, then I think you’re in a good position to get them to come back,” Murphy said.
In addition, when participants log into their accounts, the Lifetime Income Analysis Tool, with the Health Cost Estimator, is displayed on the home page. Participants have a short attention span, Jenks said, so retirement income tools must be front and center.
In the future, Jenks said Putnam would like to add long-term care information to its Health Cost Estimator.