Retire old ways of thinking

That's because we're living longer, and returns on income-producing assets have collapsed. Annuity rates are awful. But if you're looking to drawdown instead, switching into bonds and cash and expecting to live off the income for twenty years or more is just not viable any more.

"If you are approaching retirement and are going to crystallise the pension with an annuity purchase you should of course be low risk" concedes James Norton, head of investment at financial planning firm Evolve. "However, if you are in drawdown there is not a huge amount of point of moving aggressively or even exclusively into safe bonds ."

So what's the solution? Equities that pay solid reliable dividends is one option as this will provide capital growth as well as income. Aren't equities more risky? Yes, to some degree - but so is running out of money!

What can you do ?

1.Consider how much income you’re going to take in retirement. "In general, if retirees limit their initial withdrawals to 4 per cent of their investment portfolios - and then increase that amount by 3 per cent a year for inflation - they should stand an almost 9 out of 10 chance of being able to sustain that income stream over 30 years without running out of money," says Christine Fahlund, a senior financial planner at T Rowe Price.

2. Beware market volatility. According to data from Ned Davis Research over the last 80 years, big high-risk, high-volatility events have in fact occurred about every three years, with an average duration of about one year, resulting in an average decline of 35 per cent.

3.Cut costs. Index funds in particular can cut the costs of investing by more than 1 per cent a year, and over 20 years of retirement that 100 basis points per annum can cumulatively add up to a huge capital boost.

4.Consider taking equity risk, especially if you are a young pensioner. In the table below we've highlighted a number of leading equity income orientated funds provided by the big asset management groups that pay out a decent income of more than 4 per cent per annum, boast respected managers, and offer investors the chance of some potential for a capital uplift in the future.

5.Look for dividend heroes. If you’re not using funds to derive an income, think about focusing on progressive dividend payers in the FTSE 350. The key is to find companies where the dividend payout has been progressively increasing, year on year, for at least the last five years, if not the last 10. Not only will generous income help support retirement, but there's also capital growth potential.

6.Consider alternative forms of equity income. The UK listed market boasts a small number of listed infrastructure funds that invest in a combination of equity and bonds focused on the infrastructure sector. The underlying investments mostly tend to be PFI projects here in the UK although the funds can invest in everything from utility stocks through to US toll roads. 3i Infrastructure, HSBC Infrastructure and International Public Partnerships are all quoted on the London market, have produced relatively stable returns (bar 2008) and generate an income that’s on average just a tad above 5 per cent per annum.

7.Consider using hedge funds. Assume an investor has £200,000 of investments and that he or she makes a 5 per cent capital gain. That £10,000 profit could be taken by selling down the investments and then using up that year’s capital allowances, triggering no income tax charge or CGT. Many advisers channel investors towards offshore distribution bonds to shelter gains from further taxation, but the charges are horrendous. You might want to consider a listed hedge fund.