Drawdown
How much can I safely take?
The 4% rule is the most repeated number in retirement planning and one of the least examined. Here's where it came from and why it may not be your number.
The 4% rule is the most repeated number in retirement planning and one of the least examined. Here's where it came from and why it may not be your number.
It comes from American research in the 1990s, looking at historical US market data. The finding: a retiree taking 4% of their initial pot, then increasing that amount with inflation each year, would not have run out over any historical thirty-year period.
That's a genuinely useful piece of work. It's also frequently repeated with none of its conditions attached — which is where it starts misleading people.
A thirty-year retirement. A specific mix of US shares and bonds. No fees. No tax. And crucially, that you keep taking the same real amount regardless of what markets do — which is not how any real person behaves.
Stop at 60 and plan to 95 and that's thirty-five years. The rule's safety margin was built for thirty, and the failure rate rises steeply as you extend it.
The original work assumed no costs at all. Real portfolios have them, and a percentage point of annual cost meaningfully reduces what's sustainable.
Taking 4% from a pension is not the same as receiving 4%. Income tax applies, and how much depends on your other income and which pot you draw from first.
Not a flaw in the rule, but it means applying 4% to your whole pot usually understates what you can take. Once £12,000 of inflation-linked income arrives, the amount you need from investments falls sharply.
There isn't a single safe rate. There's a rate that's safe for your circumstances, and four things move it.
The dominant factor. Twenty-five years and thirty-five years are very different problems.
Poor returns in the first few years of drawing do damage that good returns later cannot undo, because you sold units to live at the bottom. This is the real risk, and it isn't captured by any fixed percentage.
Someone who can cut spending 10% in a bad year can sustain a much higher starting rate than someone whose outgoings are fixed. Flexibility is worth more than most people realise.
State Pension, a defined benefit scheme, a rental income, a business sale. Every guaranteed pound reduces what the pot has to do.
Instead of “what percentage is safe?”, ask “what does taking this amount do to the age my money runs out?”
That's a question with an answer, and it's specific to you. It also reframes the decision usefully: you're not looking for a magic number, you're looking at a trade-off between what you spend now and how long it lasts. Most people, shown that trade-off directly, make a sensible decision quickly.
The free projection does exactly this — put in what you want to spend and it tells you the age it runs out. Try a few different figures and you'll find your own comfortable point faster than any rule of thumb will give it to you.
How much to take, and which pot to take it from, quickly becomes a regulated advice question. We can model what different approaches do to your projection. We cannot tell you which product to draw from or in what order — where that's the decision, we say so and can introduce you to Equity & General (FCA 474163), optional, with the commission disclosed beforehand.
Not wrong — incomplete. As a rough orientation for a thirty-year retirement it is a reasonable starting point. As your personal answer it ignores tax, fees, your State Pension, how long you actually need the money to last, and whether you can flex your spending. Those are not details; between them they can move the sustainable figure by a long way in either direction.
Both approaches exist and they behave very differently. A fixed real amount gives you certainty of income and puts all the risk on the pot lasting. A percentage of the current value flexes with markets, which protects the pot but means your income falls in bad years. Which suits you depends on how much of your spending is genuinely non-negotiable.
That is a regulated product decision and not something we can advise on. What we can do is model what a guaranteed income of a given size would do to your plan, so you can see whether the certainty is worth it before you go and talk to somebody authorised about whether and how to buy one.
Very much, mostly for tax reasons and for inheritance tax on what is left. The Plan can model different drawdown orders side by side and show you the difference in pounds and in years — but choosing between them for you would be advice on the merits, which is where we stop.
A poor run of returns in the first few years after you stop. It does damage that later good years cannot repair, because you sold to live at the worst possible moment. It is also the reason a projection using one flat growth rate can look far more reassuring than it should.