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.
Other key factors to consider:
- How much pension savings they’ve built up
- Any impact from investment returns
- Their retirement approach:
- Attitude to risk
- Capacity for loss
- Assets used
- Ongoing plan charges
Impact on income sustainability
The heatmap below can be used to asses the sustainability of a client’s retirement plan for a given income level and term.
| Nominal Income % | ||||||||||
| 3 | 3.5 | 4 | 4.5 | 5 | 5.5 | 6 | 6.5 | 7 | ||
| Term (years) | 15 | 100%1 | 100%1 | 100%1 | 100%1 | 100%1 | 100%1 | 99%1 | 98%1 | 93%1 |
| 20 | 100%1 | 100%1 | 100%1 | 100%1 | 98%1 | 95%1 | 88%1 | 77%3 | 61%3 | |
| 25 | 100%1 | 100%1 | 99%1 | 97%1 | 91%1 | 82%3 | 66%3 | 50%4 | 35%4 | |
| 30 | 100%1 | 99%1 | 97%1 | 91%1 | 80%3 | 65%3 | 48%4 | 33%4 | 22%4 | |
| 35 | 99%1 | 98%1 | 92%1 | 82%2 | 69%3 | 51%4 | 36%4 | 25%4 | 15%4 | |
All values calculated using economic assumptions as at 30 June 2024, using a 1% AMC and invested in GRIP 3.
Key:
- 1 85%+ Highly sustainable
- 2 75 - 84% Reasonably sustainable
- 3 50 - 74% Moderately sustainable
- 4 <50% Not sustainable
We’ve recently updated our houseview to reflect the improved outlook for most of our assets over the year, where we'll continue to monitor and update this as the economic backdrop evolves. Our current houseview suggests that taking 5% income for 25 years is highly sustainable. This view is based on a client aged 65 just starting out in drawdown, invested in GRIP 3 and includes a 1% AMC
Not sustainable less than 50%
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.
Moderately sustainable 50 – 74%
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.
Reasonably sustainable 75 – 84%
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.
Highly sustainable 85%+
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.
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’s model calibration shows an increase in returns across most asset classes which largely increased the expectations of customers meeting their income targets in the short, medium, and long term.
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.