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Sustainable Withdrawals in Retirement – Blog

 

Investors expect to take ‘10.30%’ a year from retirement savings

According to a new recent global study, namely the ‘Schroders Global Investor Study 2019’, investors believe the will be able to withdraw, on average, 10.30% a year from their retirement savings without running out of funds (based on 25,000.00 in 32 locations around the world).

Typical Industry Opinion

It was argued in the early 1990’s that 4% should be considered a safe withdrawal rate for drawing an income from retirement assets, this came to be known as the ‘4% rule’. However, the 4% rule did not account for the effect of ongoing charges within the relevant pension product. There has since been numerous debates suggesting that the safe withdrawal rate is actually somewhere in the region of between 2 – 4% a year.

According to an article published by The Guardian on 28/09/2019, it states that the average pension pot at retirement is valued at £61,897.00. If we apply the safe withdrawal rate of between 2 – 4% a year, this means that the average income generated from a pension from a sustainable point of view would between £1,237.94 and £2,475.88. You have to ask yourself, could you realistically live on this level of income in retirement?

If you were to apply the investors expected withdrawal rate of 10.30% a year, this would give you an income of £6,375.39 a year. This obviously looks a little bit more appealing than the industry standard, however, this level of income based on the average pension pot size at retirement is simply not sustainable over the long-term.

What does this all mean?

My observations from these publications indicates there is a real disconnect between investors and understanding the limitations of their pension savings. I would encourage you to review your total asset position and compare this to your desired lifestyle in retirement.

We are happy to help you plan for retirement and help you understand how achievable your goals are and what actions may need to be taken in order to help you meet these goals with confidence.

Everybody is different and your requirements unique. If you are reading this at a young age, the message I would take from it is you need to start paying a lot more into your pensions.

 

 

Carl Mitchell

21/11/2019