The advent of Flexi-Access Drawdown brought forward a huge amount of choice and flexibility. The over-riding and underlying question that invariably crops up however, because of the fear of out-living your fund, is what level of return do I need to sustain my retirement?
Based on numerous studies that have been carried out over the years, a figure of 4% is bandied around the industry. Now, I am not advocating that this figure is ‘correct’, it is however suggested that a fund made up of approximately 50% equities and 50% Bonds would be able to generate an income figure of 4%, and that the investment providing this level of income/withdrawal, would then be sustained over a longer term of perhaps 25 years. So is this figure reliable? Well the problem with suggesting a growth figure, is that it generally tends to assume an averaged growth without volatility.
A choice of investment and the associated asset allocation is therefore vital. If one considers (the above) the possibility of that investment dropping substantially in the early years (maybe due to a market slide), then the 4% would tend to be less achievable, and conversely, a higher growth figure in the early years would tend to make it more achievable and likely.
So we have a ‘suggested’ growth figure (which may or may not be correct), but with numerous connotations of possible growth scenarios, but nothing ‘firm’ which one can grasp onto. There are however other aspects which can make a substantial difference, and will impact on how long an investment lasts. These being aspects such as: how charges will impact and what you get for your money? How and where you draw your monies from? The timings of these withdrawals? An understanding and consideration of your tax position? How this dovetails with your spouse? Changes to legislation?
So how do you establish a provider with good charges, an investment approach that will work for you, and also ensure that you have an on-going strategy to maximize tax opportunities…? Employ a good adviser!
Neil Dainton Dip PFS
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.