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25 May 2016

New figures suggest retirees can only safely withdraw 2.5% per annum from pension pot

New figures from Morningstar suggest that retirees can only afford to withdraw 2.5% per annum to avoid running out of money – a much lower amount than the previously suggested 4%.

With the new pensions freedoms, which were introduced just over a year ago, it is no longer necessary to purchase an annuity. Instead, many retirees are opting for 'drawdown', – where their money remains invested and they withdraw a certain amount each year.

Whilst the new flexibility gives people more control over their retirement pot, the worry has always been that people will underestimate how long they are likely to spend in retirement and withdraw too much too quickly.

The figures are certainly a wake-up call but choosing the right fund (or funds), which can continue to grow your investment and provide a decent level of income, depending on your personal circumstances, could help you to withdraw a higher figure and not run out of money.

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