How Much Can You Safely Withdraw Annually from Your Pension Pot?

There is a growing body of literature on safe withdrawal rates for retirees, but most of this research is based on the returns in the United States - what about the UK?

David Blanchett, CFA 17 May, 2016 | 9:29AM

Against the background of the UK pension freedom legislation, it is important that retirees have a reasonable expectation of the proportion of their assets they can withdraw each year to fund their cost of living, while ensuring sufficient capital remains to deliver a similar level of income into the future. This is commonly known as the ‘safe withdrawal rate’.

There is a growing body of literature on safe withdrawal rates for retirees, however most of this research is based on the historical returns of assets used by investors in the United States. Given the unique market environment for UK-based investors today, it makes more sense to base withdrawal rates off the expectations for UK-based investors than the history or projected returns for another country.

There are three primary findings from our research paper UK Safe Withdrawal Rates for Retirees. First, that while the historical performance of stock and bond markets in the UK has been relatively similar to the global average, future expected returns in the UK, especially in the near-term, are likely to be considerably lower.

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About Author

David Blanchett, CFA  is Director of Retirement Research with Morningstar Investment Management.

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