How much of your pension can you afford to spend each year?

In today's low-interest-rate world, knowing how much pension to draw down can be tricky, says Natalie Stanton.

There's a well-known pensions rule of thumb if you start out your retirement by spending 4% of your pot in the first year, then increase that sum with inflation each year, it's unlikely you'll run out of cash before you die. This so-called "safe withdrawal rate" has been relied upon for years. However, new research suggests that, in today's low-rate world, this advice is out of date, and that retirees should now be more conservative.

So what's wrong with the 4% rule? Investment research group Morningstar points out that the figure is based on research carried out in America in the 1990s, and is therefore not necessarily suitable for use in the UK, particularly in the current environment.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide. 

She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.