As a trusted adviser, we want to address some important and recurring questions we hear from our clients. In our latest webinar, our expert panel of three discussed various facets of retirement, including how to prolong your savings through retirement and how to spend without fear of your retirement fund running dry.

In case you missed the webinar, we’ve captured the highlights for you below. Alternatively, you can watch the recording here.

Ask the audience

We kicked off the discussion by asking participants, “How comfortable are you with the risk that you could outlive your retirement savings?”. Discomfort was a trend affecting over half of respondents – 37% felt ‘uncomfortable’ with this risk while another 14% indicated that they felt ‘very uncomfortable’.

Georgina Fry, a Saunderson House Chartered Financial Planner, then introduced the concept of your personal safe withdrawal rate, which she stressed was “crucial to any retirement conversations” and central to the following questions:

  • How much do I need to save to be able to retire?
  • Can I afford to retire now?
  • How much can I spend each year without running out of money later on?
  • How much can I afford to gift away without compromising my lifestyle?

So, what is the personal safe withdrawal rate?

Put simply, it’s the amount that can be withdrawn from your portfolio on an annual basis without your portfolio running out in the longer term. Usually expressed as a percentage of the initial portfolio value, it is converted into a sum that can then be fixed or linked to inflation. Knowing your safe withdrawal rate lets you plan accurately, spend confidently and preserve a legacy for your family if you desire.

How do we calculate your personal safe withdrawal rate?

Using historic returns, we work out the maximum amount that you could have withdrawn as a percentage of your initial portfolio value without ever running out of money. The personal withdrawal rate is unique to each client’s personal and financial circumstances, and should be reviewed every three to five years. It’s informed by the following variables, which are factored into our calculations:

  • Age – the younger you are at retirement, the lower your safe withdrawal rate is likely to be. We calculate how long the portfolio would need to last to sustain withdrawals until age 100 (the Office for National Statistics suggests those at age 65 have a nearly one-in-ten chance of reaching 100).
  • Inflation protection – should the withdrawals increase over time? Some clients don’t need full inflation protection, as their spending tapers off in real terms over time (they might spend more when they are younger and more active). If inflation protection is a big concern, this can lower the safe withdrawal rate.
  • Do you want to leave a legacy? Some clients might want to enjoy their retirement through spending; others may wish to leave a legacy. Those who wish to preserve capital for a legacy are likely to have a lower safe withdrawal rate.
  • Attitude to investment risk – because of the risk/reward dynamic, cautious investors are likely to have a lower safe withdrawal rate while more adventurous attitudes to risk typically lead to a higher rate.
  • How comfortable are you with the risk of running out of money? This takes us back to our poll question – for clients very concerned about this risk, we would plan based on the worst-case historic scenario. Buying an annuity is an option too, as it would guarantee a level of income. For those less concerned by this risk, and more worried about leaving money unspent, it can make sense to plan based on less pessimistic historic scenarios and adjust course later if required.


The historic returns we use date back to 1926, and period that covers the Great Depression, the stagflation of the 1970s, the Japanese equity boom and bust of the 1980s and 1990s, and the bursting of the Dot com bubble and global financial crisis this century.

David Morcher, Investment Analyst at Saunderson House, looks at these historic crises in more detail, compares these to the recent Coronavirus crash, and draws out some of the key investment lessons that are relevant to anyone trying to safely navigate retirement today.

Is a safe withdrawal rate more useful than a cash-flow forecast?

You need both. Your safe withdrawal rate is, by nature, cautious and pessimistic. It needs to get you through a worst-case scenario. Long-term cash flows, meanwhile, are based on simple assumptions about investment returns and inflation, but are very useful for painting a picture of what your future might look like, and scenario testing. Safe withdrawal rates and cash flows should be used hand in hand as they show different elements of retirement planning. The best-planned retirement considers both.

Are you on track for the retirement you want?

Hopefully, this summary has shown you what a safe withdrawal rate might look like for you and has provided you with reassurance that you are on track for the retirement income you desire. We’ve also tried to show some trade-offs you could consider.

If you’d like to firm up or change your retirement plans, don’t hesitate to contact us.

About The Author

John Hill
John joined Saunderson House in 2011 after graduating with a first-class honours degree in European Social and Political Studies ...
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