NATURAL YIELD
Long said pensioners should aim to withdraw the “natural yield” on their investments, the money earned from savings interest and dividends: “This is sustainable as you take only the income produced by your investments.”
Somebody who did this would have generated a low initial income of £2,000 a year from their £100,000 pot in 2000, but it would have grown over time as stock markets rose.
Today they would get around £4,146 and their original £100,000 would now have increased to £124,803.
Dividends can fluctuate but are less volatile than share prices as they are driven by company fundamentals as opposed to sentiment, said Long, who suggests investing in equity income funds with good yields.
For example, Newton UK Income currently yields 3.78 per cent a year, which would generate £3,780 from a £100,000 pension pot, while Fidelity Moneybuilder Dividend yields 4.39 per cent, or £4,390.
LONG LIFE
Andrew Tully, pensions technical director at Retirement Advantage, said there has been a shift away from annuities, with twice as many people wanting drawdown, but they face “longevity risk”: “People don’t know how long they will live, which means making decisions with one crucial piece of information unavailable.”
Drawdown is also risky because your income is sensitive to stock market volatility and could fall or even run out.
Tully suggested totting up all your retirement income, including state, company and private, then calculating your outgoings to see how much money you can draw and how long your pot can last.
