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Income in retirement

By Jozef Spiteri
This article is published on: 21st March 2023

Following the previous article where we saw how investing can be used to increase levels of savings in retirement, we will now focus on how invested funds can be of added benefit when it comes to drawing an income in retirement.

We shall be making use of the same three scenarios we saw in the last article, where John had to choose between keeping all savings in cash, investing in a balanced risk portfolio or investing in a more adventurous portfolio.

In the first scenario John was left with cash reserves of €911,186 at retirement.

In retirement John aims to maintain his lifestyle whilst also taking two big trips annually with his partner. An estimated drawdown of €50,000 per year should allow this. In this case, cash reserves would last John 18 years. Considering that people nowadays are living longer, John will have some tough decisions to make. This may involve reducing the withdrawals made each year in order to stretch the funds as much as possible. Therefore, John will find it very difficult to maintain the retirement he wanted.

Looking at scenario 2, John will have an investment pot of €1,375,757 at retirement growing at 4% per year. If he were to withdraw €50,000 a year, this would represent a 3.6% annual withdrawal. This would mean that he would be taking out most of the average growth being achieved annually, which will more or less have his portfolio increasing by 0.4% per year net of drawdown. This will mean that John will not only be able to lead the life he wishes but also have a valuable cushion to protect against unexpected expenses which could arise in future.

The potential cushion with scenario 3 could be even greater with a savings pot of € 1,845,763 at retirement and an investment growing at an average 6% per year. John will be making an annual withdrawal of 2.7% of his portfolio leaving a net growth of 3.3% per year after drawdown. It’s often the case however that a more ‘balanced’ risk approach is taken in retirement.

This example illustrates the power of investment not only before, but during, retirement – compound returns within a properly planned investment strategy will often contribute towards achieving a secure and comfortable retirement.

The above are simplified examples and for illustrative purposes only. For a more detailed outline of how we implement successful investment strategies, please contact us to arrange an introductory discussion. 

Article by Jozef Spiteri

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