There is an often-cited rule of thumb that 4% is the maximum amount you can take out of your pension each year if you are to avoid running out of money. The question is, what is a sustainable level of income to take each year? A few things will change the answer to this, including: But then what should they do with the rest of the pot to make sure it continues to pay a large enough income? You need to get your strategy right to ensure you are taking cash out in a sustainable way, otherwise, you could quickly run out of money. Many people, when they first start drawing their pension, take advantage of the 25% tax-free lump sum rule to withdraw some cash, whether it’s to pay for a big purchase such as a car or perhaps to pay off debts such as a credit card or loan. But this is not a good idea for a number of reasons, not least that it could trigger a huge tax bill. If you wanted to, when you reached retirement age you could close your pension scheme and withdraw the whole amount as cash. You can take a lump sum out as cash, up to 25% of the value of your pot, and you won’t pay tax on this. You can buy an annuity, which gives you a set regular payout – if you choose a lifetime annuity you get a guaranteed income for life, but you can also choose it over a shorter fixed period (see below for more on annuities versus pension drawdown). Look at the range of funds on offer, their performance and charges. You don’t have to go with your existing pension provider, in fact, you should shop around in case a different company can better meet your needs. This is a fund which gives you a regular, adjustable income that can flex to your needs. You can buy a flexi-access pension drawdown product, such as those offered by all the big pension scheme providers. Below, we explain each of the options: Flexi-access pension drawdown There are a number of options available to you, and if you like you can do a combination of them thanks to the pension freedoms that have been in place since 2015. #Investment drawdown calculator how toThis hopefully means your pot will stretch to fund as many of your retirement years as possible.įor more detail on the ins and outs of pension drawdown, read our article ' What is pension drawdown and how does it work?' How to withdraw from your pension? If you have a defined contribution pension, you can do this by using a flexible drawdown product which lets you keep the money you don’t need right now invested so it can keep growing. Pension drawdown is what happens when you switch between the two phases and start taking money out of your pot. In industry jargon, these are called the accumulation and decumulation phases. Retirement has two main phases – saving up (building up your pension pot) and drawing down (taking your savings out as an income for you to spend). This guide gives you a few pointers to help you calculate a sustainable withdrawal rate, so your hard-earned pension cash lasts as long as you do. The truth is there isn’t one number that will work for everyone, as there are a few factors at play. How much can you really take out of your pension to see you through retirement in comfort, but without burning through your savings too quickly? Some wealth managers say 5% a year, some research says less than 2%.
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