Improving retirees’ withdrawal symptoms
Are savers taking their pension’s pulse regularly enough? We examine a health check that we believe can help investors spend sustainably.
What, when, and how much? For savers entering income drawdown in retirement, the key questions are not only how they should invest, but also how quickly they should withdraw.
To work out how quickly to withdraw, investors need to understand the risks associated with spending too quickly (and running out of money) or spending too slowly and ending up with a large amount of unspent cash. Understanding the risks involved is complicated, as investors face both investment risk (i.e. the risk that assets perform worse than expected) and longevity risk (i.e. the risk they live for longer than expected). These risks depend on the investment strategy followed and the age and health of the investor. Longevity risk is important for investors in retirement and our research indicates that a typical income drawdown investor entering retirement faces similar levels of longevity risk to investment risk, and that its importance increases with age.