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Clinging onto wealth

We'd have a more comfortable retirement if we ran down our wealth, but there are powerful psychological forces stopping us doing so.
Clinging onto wealth
  • We don't spend as much in our retirement as economic theory predicts we should
  • There are strong psychological obstacles to spending more. It's difficult to overcome these. 

How much can we afford to spend in retirement? The answer could be more than you think, because we make errors of judgment in thinking about our wealth.

Time was when the question was simple. We used to retire on an annuity that protected us from the two opposing dangers with financial planning – either that we would outlive our wealth or that our wealth would outlive us. With the demise of annuities and final salary pensions, however, we are thrown back onto a rule of thumb – the one which says we can withdraw 4 per cent of our wealth each year without eating into our capital over time.

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