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‘Withdrawals over 4% could exhaust pensioners’ capital’

Increasing longevity means that 90 per cent of people could exhaust their savings before they die if they withdraw more than 4 per cent a year, warns Fidelity.

Research by the fund firm suggests that 70 per cent of over-55s who have not yet retired do not know how much they will need to withdraw from their savings in retirement.

Fidelity concludes that, for an increasing proportion of their retirement income, people will rely on sources that do not have the lifetime guarantee that comes with an annuity. It says this will cause a significant shift in the market which poses a whole new set of challenges.

It says: “Withdrawing more than 4 per cent a year in real terms will considerably heighten the risk of capital erosion and the prospect that our money may run out before we die.”

It outlines a checklist of five things which should be considered in retirement planning, including estimating monthly or annual expenditure, looking at other potential sources of income such as equity release and considering life and long-term care insurance.

President of institutional business Simon Fraser says: “People could find themselves in retirement for up to 35 years, almost as long as they spend in their working lives.

“This has huge implications for savings. People need to be much more informed about the rate at which they dip into their capital, otherwise they are in danger of burning through their savings well before they die.

“They then face the prospect of falling back solely on state and company pension benefits, often at a time when their expenses could be rising as a result of ill health.”

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