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Investors overestimate how much they can withdraw from retirement savings

How much will you be able to withdraw from your retirement savings each year? If you opt for drawdown -- taking an income from your pension pot while leaving the rest invested, rather than buying an annuity -- it's important to make sure you keep enough invested to provide an income for life.

However, new research suggests that many pension savers overestimate how much they can take out each year.

According to the Schroders Global Investor Study 2019, which surveyed more than 25,000 investors in 32 locations around the world, investors believe they will be able to withdraw, on average, 10.3% a year from their retirement savings without running out of money.

That's well above long established guidance on how much to take each year to pay an income, Schroders warns. In the US, for example, the "4% rule" has been the basis for financial planning in recent decades -- and some experts now believe that even a 4% withdrawal rate is too high.

Sangita Chawla, head of retirement savings at Schroders, said: "To see such a high average figure for withdrawals in this market environment was alarming.

"Our calculations show that a 10.3% withdrawal rate could deplete a retiree's savings in a decade."

Many people may be underestimating how long they might live, Chawla believes.

"Consider that global average life expectancy for 65-year-olds has risen from 80 to 82 in the past decade, according to United Nations data," she pointed out.

"It's also possible that people are being more bullish about the amounts they plan to withdraw because they have other sources of income or wealth to rely on.

"These factors aside, it's fair to say to calculate how long savings can last is not an easy calculation, particularly as you need to factor in inflation, fees and the variability of investment returns. We would always recommend seeking professional help from a financial planner or adviser."

At Fidelius, we can help with every aspect of wealth management, from retirement planning and investment management to funding for later life care and estate planning.

When it comes to your retirement savings, we can assist you in building up a fund and balance the tax advantages of saving through pensions, against the flexibility of other options. We'll view the whole picture and can suggest strategies to access your wealth in stages, supporting those who prefer a gradual transition between full time work and full time retirement. When you do retire, we can help arrange a guaranteed income for life, or invest funds to provide a flexible and potentially growing income over the years.

Contact us today to learn more!

Posted on November 25th 2019

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