FOR ADVISERS ONLY
Income sustainability – our view
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) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2 | 2.5 | 3 | 3.5 | 4 | 4.5 | 5 | 5.5 | 6 | ||
| Term (years) | 15 | 100.0% | 100.0% | 100.0% | 100% | 100% | 100% | 98% | 93% | 82% |
| 20 | 100.0% | 100.0% | 100.0% | 100% | 96% | 87% | 71% | 46% | 26% | |
| 25 | 100.0% | 100.0% | 98% | 91% | 77% | 55% | 31% | 15% | 6% | |
| 30 | 100.0% | 99% | 91% | 76% | 52% | 30% | 13% | 4% | 1% | |
| 35 | 100.0% | 94% | 81% | 58% | 34% | 16% | 6% | 2% | 1% | |
All values calculated as at 31 December 2021, using a 1% AMC and invested in GRIP 3
Key: 85%+ Highly sustainable 75 - 85% Reasonably sustainable 50 - 75% Moderately sustainable <50% Not sustainable
Our current view is that taking an income of 3.5% 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.
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.
As expected, uncertainty remains over the quarter. This quarter we see increased volatility across most asset classes along with lower future expected returns.
Our income sustainability scores
Not sustainable
Moderately sustainable
Reasonably sustainable
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.