High inflation means the end of the “4% rule” for retirees

High inflation means that it’s time to reassess how much you withdraw from your pension each year if you don't want to run out of money .

Two grey old people
Cutting back may be the prudent option
(Image credit: © Getty Images)

All retirees drawing an income from their savings face the same dilemma: how much can they safely take out each year without having to worry their money will run out?

For many years, the 4% rule devised by US financial-planning guru William Bengen has been used as a benchmark. This says that if you set your spending as 4% of your savings in your first year of retirement and increase that amount each year to keep pace with inflation, your money should last for as long as you’re likely to need it.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.