The ‘4% rule’, developed by US adviser William Bengen in 1994, has often been turned to as a rule of thumb for determining a sustainable level of retirement income.

But a study by EValue and Aegon found that in today’s economic climate, a 65 year old entering drawdown in a low risk portfolio, taking 4% of the initial amount each year, has a one in five chance of running out of money within 30 years.

The report set out a sliding scale, from 1.7% to 3.6% depending on the risk profile and time period, as a starting point for considering the appropriate level of retirement income. It highlighted the key role of advisers in determining a personalised income rate for their individual clients.

Steven Cameron, pensions director at Aegon, said: “Planning a retirement income to last a lifetime is too important and complex to be boiled down to a simple rule of thumb. The 4% ‘sustainable income’ rule was developed in the US in the 90s, at a time when interest rates were significantly higher.

“More recent studies in the US and UK have brought this figure down, but any attempt to come up with a single number will never work across a wide range of clients with different life expectancies, risk appetites, and capacity for loss. Advisers will be well aware of the dangers that rules of thumb pose but we hope our sliding scale provides an additional insight on which they can build tailored income rates for different clients.”

Mark Grimes, product director at technology provider EValue, said: “This has been a really interesting exercise in testing how an assumption like taking 4% retirement income for life will work in practice. The research is driven from our economic forecasting tools and localises the 4% rule to the UK market – a good thing for advisers and customers alike. “Importantly, it challenges all of us to broaden our thinking beyond the more traditional retirement income models in a much changed pension landscape.”