Income sustainability – our view

One of the key conversations you'll have with your drawdown clients is how to sustain their desired level of income when they retire.

Of course every client is different.  But the amount of sustainable income they can take from their plan will generally depend on things such as their income needs, life expectancy and personal circumstances.

  • Income needs
  • How much retirement savings they’ve built up
  • Personal circumstances
  • Life expectancy
  • Any impact from investment returns
  • Their retirement approach:
    • Attitude to risk
    • Capacity for loss
    • Assets used
  • Ongoing plan charges

Impact on income sustainability

The heat map below shows sustainability scores based on how much income is taken from the plan and for how long. It assumes a client’s invested in Governed Retirement Income Portfolio (GRIP) 3 and a 1% annual management charge (AMC) applies.

  Income % (per year)
22.533.544.555.56
Term
(years)
15 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.4% 97.8% 93.2%
20 100.0% 100.0% 100.0% 99.8% 99.0% 95.8% 90.9% 76.4% 54.8%
25 100.0% 100.0% 99.8% 98.6% 94.5% 85.5% 65.4% 41.7% 21.9%
30 100.0% 99.8% 98.8% 94.9% 85.1% 65.5% 40.6% 22.0% 9.6%
35 100.0% 99.4% 96.8% 89.0% 74.5% 47.9% 28.1% 12.5% 4.9%

All values calculated using a 1% AMC and invested in GRIP 3

Our current view is that taking an income of 4-4.5% is highly sustainable. This is based on income being taken for 25 years and assumes that the client’s invested in GRIP3 and a 1% annual management charge (AMC) applies.

Income sustainability

For more information about our income sustainability view, download our Sustainable income guide.

Market update 

We update the assumptions used in our drawdown governance service every quarter to make sure your client's income sustainability score always reflects current market conditions.

This quarter we've seen expected returns across all asset classes and terms increase slightly. This has resulted in marginal changes, both positive and negative, to sustainable income levels.

Our income sustainability scores

less than 50%

Not sustainable

50 - 75%

Moderately sustainable

75 - 85%

Reasonably sustainable

85%+

Highly sustainable

Our expert view is that the level of chosen income is unlikely to be sustainable and the client has a very low chance of being able to maintain it.

Our expert view is that the level of chosen income is moderately sustainable and the client has a moderate chance of being able to maintain it.

Our expert view is that the level of chosen income is reasonably sustainable and the client has a reasonable chance of being able to maintain it.

Our expert view is that the level of chosen income is highly sustainable and the client has a very good chance of being able to maintain it.

Find out more

To find out more about income sustainability and how we can help you and your clients, speak to your usual Royal London contact.  You can also download our Sustainable income guide.

Last updated: 22 Nov 2017

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