According to recent research conducted by Royal London, a high number of people may be taking too much out of their pension pot. This means they may risk jeopardising their retirement plans as they’ve not left enough to last until they pass away.
The research has shown that just 53% of Royal London’s drawdown customers risk running out of money in retirement. With rising age expectancies and the uncertainty of Brexit ahead, it’s vital that careful financial planning is undertaken to secure income for the future.
The amount of income that’s being taken from a plan each year must be sustainable. Depending on the amount of time that the pension pot will be needed as well as various income needs and life events, a sustainable percentage of the pot can vary.
Royal London have developed a heat map, which gives a sustainability score to each withdrawal rate compared with time frame. For example, a withdrawal rate of 4% over 25 years has a sustainability score of 93%, whereas the sustainability score for this withdrawal rate drops to 61% if taken over 35 years.
Those who take over 4.5% of their pension pot may run the risk of outliving their income if they will need the money for a 20-year period or more. People in the UK are living longer, meaning this might be the case for many pensioners. However, if savers have multiple pension pots, they may be able to take a higher percentage of their drawdown as income.
It’s vital for savers to take into account the amount of time they’ll need their pension for in order to ascertain a sustainable to level of withdrawal per year. If you’d like more information about pensions, pension transfer or ensuring your pension pot is sustainable, talk to a local pension adviser in Birmingham or Warwickshire today.
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