One in five people taking a yearly retirement income of 4 per cent will run out of money in 30 years, Aegon has found.

In a new report What's the new sustainable income rate in retirement?, Aegon and actuarial firm EValue have looked at the risks that DIY drawdown investors could be exposing themselves to. The research essentially concluded that those relying on the simple 'rule of thumb' whereby retirees take 4 per cent of their income per year is now unsustainable in the long term.

Since the introduction of the pension freedoms over half a million people have taken more than 1.5 million flexible payments, valued at £9.2bn, from their pensions. However, only 20 per cent of over 50s have currently sought the advice of a financial adviser, suggesting that a significant proportion accessing their pension are taking a DIY approach towards their drawdown decisions, the report stated.

While Aegon highlights that a sustainable income levels vary from 1.7 per cent to 3.6 per cent, depending on personal circumstances and investment approach, many are taking more than this.

A common rule of thumb has been the '4 per cent rule', which was initiated in the US in 1994, meaning that a person who leaves their pension invested in the stockmarket can take 4 per cent of their pension pot at retirement each year without running out of money.

Nonetheless, this is no longer viable today. Aegon’s report has shown that in today’s economic climate, a 65 year old entering drawdown in a low risk portfolio, taking 4 per cent each year has a one in five change of running out of money if they live to 95 years or beyond.

Instead, the firm has indicated that an income rate between 1.7 and 3.6 per cent depending on each individual’s life expectancy, investments and willingness to run out of money should be chosen.

Aegon pensions director Steven Cameron said: “Planning a retirement income to last a lifetime requires careful thought and those tempted to ‘do it themselves’, taking an income based on the historic 4 per cent rule of thumb, need to be aware of the risks of running out of money. The 4 per cent ‘sustainable income’ rule was developed in the US in the 90s, at a time when interest rates were significantly higher."

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