Are you talking to clients about retirement planning?

22 March 2017



More people are using income drawdown than ever before so it's not surprising that for many of you retirement planning often accounts for the largest slice of your business income.

One of the key conversations you'll have with your drawdown clients is how to sustain a reasonable level of income. This isn't straightforward and involves an appreciation of the risks and trade-offs.

The '4% withdrawal rate' is often cited as a good starting point but it's a broad rule of thumb and once you factor in individual client circumstances, investment strategy and fees, it can start to look quite different.

To help you understand how sustainable 4% is we have produced a heat map below which shows sustainability scores for different withdrawal rates and different terms.

  Income Withdrawal Rate % (per annum)*
15 100.0% 100.0% 100.0% 100.0% 99.9% 99.4% 98.3% 96.2% 91.4%
20 100.0% 100.0% 99.9% 99.4% 98.2% 95.3% 88.9% 77.5% 63.6%
25 99.9% 99.9% 99.2% 98.1% 92.9% 84.8% 71.5% 55.3% 36.8%
30 100.0% 99.6% 98.3% 93.4% 86.1% 72.4% 54.9% 37.3% 22.4%
35 99.1% 99.1% 96.1% 89.5% 78.3% 62.4% 42.6% 26.2% 16.3%
Highly Sustainable 85% - 100%
Reasonably Sustainable 75% - 84%
Moderately Sustainable 50% - 74%
Not Sustainable 0% - 49%

* Rates correct as at 22 March 2017

We've categorised the sustainability scores into different bands so we can understand what good and bad looks like. For example we think 85% or more is highly sustainable because it means that 85% of the time the customer will achieve this level of income or more and 15% of the time the customer will achieve less.

You can see that over all terms a withdrawal rate of 4% is reasonably sustainable and that over a 15 year term a 6% withdrawal rate is highly sustainable. Where it starts to get interesting is really between 4-6%. As term increases beyond 15yrs a 6% withdrawal rate quickly becomes unsustainable.

This is useful to show how term and income withdrawal rates impact sustainability and can be a good starting point for discussion. But we can get more specific than this.

Our Income Planning Tool will paint a picture of how sustainable different income levels are based on individual client circumstances. This takes into account how much has been saved, the level of desired income, how long the income is to last, the investment strategy and charges.

The tool will then use this information to calculate a stochastic projection of the probability of achieving the desired income level over the term. This can help you to manage client expectations around income withdrawal rates and avoid any nasty surprises.

What's more our Drawdown Governance Service can help you track client scores each quarter so you can easily see which clients are at risk of running out of money.

What's clear is that there isn't a one size fits all solution. Regular reviews and active management of your client's evolving needs and income requirements can highlight even the smallest adjustment needed to help keep them on track.

Our range of retirement planning tools can help you understand your client's goals, the sustainability of their chosen income and the suitability of their investment choice.

Next steps

To find out more about income sustainability and how we can help you and your clients, speak to your usual Royal London contact.

About the author

Lorna Blyth

Head of Investment Solutions

Lorna is responsible for the the ongoing promotion and development of Royal London's investment proposition. She holds the IMC qualification and a Masters in Investment Science.

Last updated: 22 Mar 2017

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.