Placeholder guide drafted for launch. Andrew to review, edit and approve before it goes live.
For a lot of our parents, retirement income was simple. They worked for one employer, joined the final salary scheme, and on the day they retired a guaranteed income started arriving for the rest of their lives. The employer carried the investment risk, the inflation risk and the risk of them living to 100.
Most people retiring today don’t have that. They have one or more defined contribution pensions: pots of money that they have to turn into an income themselves. That shift moves a lot of decisions, and a lot of risk, onto the individual. It’s one reason 73% of people think retirement will be more complex in future than it is now.1
The decisions that used to be made for you
With a defined contribution pension, you (or your adviser) need to decide:
- How it’s invested, both before and after you retire.
- How you take it: a regular income through drawdown, an annuity, lump sums, or a mix.
- How much you take, and when.
- Which pots you draw from first, including ISAs and other savings alongside your pensions.
- How to keep tax efficient. Usually up to a quarter can be taken tax free, with the rest taxed as income, so the order and size of withdrawals matters.
Timing your withdrawals
One of the less obvious risks in drawdown is what’s sometimes called sequence risk. If markets fall early in your retirement while you’re also taking money out, you’re selling investments at low prices. That can do lasting damage, even if markets later recover.
There are practical ways to manage it:
- Keeping a cash reserve to draw on when markets are down, so you’re not forced to sell.
- Adjusting withdrawals in poor years and topping up in good ones.
- Using guaranteed income, such as an annuity, to cover essential spending.
Investment strategy doesn’t stop at retirement
Retiring doesn’t mean switching everything to cash. If your money needs to last twenty or thirty years, part of it will usually need to stay invested for growth, with the rest set aside for nearer-term income. Getting that balance right, and revisiting it as your circumstances and the markets change, is a big part of what ongoing advice is for.
Why regular reviews matter
A drawdown plan isn’t something you set once. Markets move, tax rules change, and your own plans shift. A regular review checks whether your withdrawals are still sustainable and whether your investments still fit what you need from them.
If you’d like a second opinion on how you’re taking, or planning to take, your pension, book a conversation with us.
1. Standard Life Centre for the Future of Retirement, Retirement Voice.
This guide is for general information only and does not constitute personal financial advice. The value of investments can fall as well as rise and you may get back less than you invested. Tax rules can change and their effect depends on your individual circumstances.