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Four important tips for drawing a sustainable pension income throughout retirement
25th September 2024


As a retired individual, or someone who is just about to retire, your pension might be on your mind more than usual.
You could be asking yourself questions like:
- Do I have enough in my pension to last a lifetime?
- How much tax will I pay when I take my pension benefits?
- Could unexpected events deplete my pension wealth faster than I expect?
If these questions are on your mind, you’re not alone. Yahoo Finance reports that 65% of women and 57% of men worry about outliving their retirement savings.
So, read on to discover four key tips for drawing a sustainable pension income.
- Choose a tax-efficient way to take your pension benefits
When withdrawing from your defined contribution (DC) pension fund, tax is one of the most important aspects to consider carefully before you do so.
There are several ways to take your pension benefits, including:
- Buying an annuity, which provides a steady income for a set period of time (usually until you pass away)
- Taking some or all of your pension as a cash lump sum
- Entering drawdown, which allows you to take cash from your pension flexibly whilst leaving the rest invested
- A combination of these options (for example, using half your pot to buy an annuity and taking the rest as a flexible income).
Crucially, no matter how you take your funds, your pension wealth may be subject to Income Tax. Usually, 25% of the amount you withdraw is tax-free, with the remainder being subject to your marginal rate of Income Tax.
With this in mind, if you took your entire pension as a cash lump sum, you could end up paying additional-rate (45%) tax on a large portion of your funds. This could deplete your money faster than you’d like and leave you with less to live on in retirement.
On the other hand, forming a tax-efficient pension income strategy with a Financial Planner may help you stretch your pension pot further over the coming years.
- Think carefully about your life expectancy
You could be thrilled to learn that, due to rising life expectancies, you may have more time to spend with your loved ones than you originally thought.
However, with a long life comes the responsibility for making your money last.
So, think about:
- The age at which you want to retire – the earlier you do so, the longer your pension pot may need to last
- Your life expectancy – you can calculate the average life span of someone your age using the Office for National Statistics (ONS) calculator.
Estimating how long your pension pot may need to last could help you work out how much you can afford to draw each year, accounting for investment returns and inflation.
- Remember that your pension is not your only source of retirement income
Although your pension may form a very large portion of your retirement income, remember that there may be other sources you can draw from too.
For instance, if you are eligible for the full new State Pension, you would receive £221.20 every week as of the 2024/25 tax year. It may rise again in April 2025, according to the BBC, to £230.05 a week. This means eligible retirees could take an income of nearly £12,000 a year from the State Pension alone.
What’s more, you could have other savings, investments, and properties, all of which may be able to subsidise your retirement lifestyle.
Knowing that there are other sources providing a reliable income in retirement could bring you peace of mind. You might realise you’ll need to draw less from your pension each year than you originally thought, and may feel more optimistic about affording the retirement you want.
Be aware, though, that each form of income is likely to be subject to tax, and taking small amounts from different sources could cause you to lose track of your tax liability. That’s where forming a plan with a professional can be so useful – you might feel more confident about your retirement income and be less surprised by the amount of tax you pay.
- Look at a bespoke cashflow forecast produced by your Financial Planner
If you’re still feeling worried about drawing a sustainable retirement income, you can work with one of our Financial Planners to create a cashflow forecast.
Cashflow forecasting, also known as “cashflow modelling”, gives you a data-driven projection of how your financial circumstances may look in retirement. It takes your savings, investments, pensions, and properties into consideration, applies an assumed inflation rate and investment returns, and offers an estimation based on these criteria.
Using this basis, your Financial Planner can help you draw a sustainable income from your pension and other savings and investments, giving you the confidence to live the life you deserve in retirement.
Get in touch
Worried about outliving your pension? Need help working out your retirement income? It’s never too late to gain professional guidance.
Email us at enquiries@pen-life.co.uk, or call 01904 661140.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate tax planning or cashflow modelling.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Category: Pensions, Retirement