- Consider factors including the size of your pot, and your age and average life expectancy
- To ensure that your assets don’t run out it is important not to draw too much from them early on
- Be realistic about growth and inflation
If you rely on your investments for income – because you are in retirement, for example – you need to ensure they can continue to provide that income for as long as you need it, and you shouldn’t draw more than is sustainable. What is harder to determine, however, is what a ‘safe' withdrawal rate is as this depends on a number of varying factors including ones unique to yourself. Rob Morgan, chief analyst at Charles Stanley, argues that: “The uncertainty of those variables means there is no ‘safe’ level. Rather, there is a range of outcomes with different levels of probability.”
Four per cent of the value of your portfolio a year is often cited as an amount you can safely withdraw without the risk of assets running out before the end of your life. However, this assumption was made by US financial adviser Bill Bengen in the mid-1990s on the basis of stock and bond returns between 1926 and 1976 – and the future could look very different.