Pension Drawdown Calculator

How long do you expect to live after you retire? Age 100? Age 85?

Try our life expectancy calculator as a guide.

To be conservative, enter a higher value.

Pressure test your pension pot against different lengths of retirement.

So if you’re planning an early retirement at 55, you might want to test your pension pot for 30 years and again for 40 years.

If you have a family history of living beyond 90 you may even want to stress test 50 years, obviously.

If you don’t plan to retire until state pension age, you’ll probably find 40 years is an adequate length of retirement to stress test.

If you know how much your pension pot is going to be worth at your retirement age you can add it here.

If you’re not sure you can use our Retirement Savings Calculator to work out the value of your pension at retirement or use our Pension Forecast Calculator to see how much your pension might be worth.

How much you plan to withdraw in the first year (this amount does not include State Pension, other pensions, or other income sources, just the amount you plan to take out of your nest egg each year). During the simulations, the withdrawal amount is adjusted for inflation.

Your Annual Withdrawal or Income can be expressed as an amount or a percentage of your pension pot. This is a gross figure, it does not take into account any tax that you will need to pay on your pension income.

Our drawdown pension calculator will also provide you with a graph that shows how long your pension will last at this withdrawal rate.

The percent of your pension pot you plan to withdraw in the first year to live on.

A safe withdrawal amount is considered to be 4% or less.

How you choose to invest your pension pot will affect how your investments perform. High-risk investments might offer the chance of higher returns but they also come with the danger of higher volatility and potentially higher losses.

This calculator gives you the chance to see how different investment decisions would have played out in numerous different market conditions. This is a great way to see how you really feel about risk and what kind or risk vs returns you might be comfortable with.

We’ve given you the option of stress testing 6 different types of ‘ready-made’ investment strategies

• Growth – higher risk investment funds –  85% stocks & 15% bonds
• Balanced – medium risk investment funds –  55% stocks & 45% bonds
• Cautious – lower risk investment funds – 35% stocks & 65% bonds
• All stocks – based on UK Equity Index and FTSE all-shares total return
• All bonds – based on Sterling UK Government bonds
• All cash – using Bank of England historical interest rates

If you have a preference for how you like to split your investments between stocks, bonds and cash, you can enter custom figures here.

Our drawdown calculator will help you understand the likelihood that your pension pot will last you through retirement.

Remember that this calculator is based on historical UK market data and that past performance is not an indicator of future returns.

What it offers is a chance for you to stress test your retirement plans against numerous market conditions.

You can see how different retirement scenarios would affect your pension:

• How a longer or shorter retirement might affect your income
• How a larger pension pot might last or allow you to take a higher retirement income
• How more or less income might impact how long your pension pot will last
• How your investment choices could affect the value of your pension pot over time

For a 30 year retirement period, this calculator will run a simulation from 1928 to 1958, then it will run a simulation from 1929 to 1959, then from 1930 to 1960, and so on. In simulations that go beyond the present year, it will wrap back to 1928 and count up from there. In this sense, the effect of the great depression is factored in for early and late starting years.

Each individual simulation computes returns by stepping through the years (eg 1928, 1929, … 1958) and performs the following each year:

• Calculates the change in value in the portfolio.
• Adjusts the annual withdraw amount for inflation based on the CPI (consumer price index) for that year.
• Updates the portfolio balance by adding the change in value and subtracting the withdrawal amount.
• Rebalances the portfolio.

This calculator is NOT a Monte-Carlo simulator in that it does not generate any fake or random data. Instead, this calculator uses historical UK data and backtests against it. Essentially it replays what happened in each of the years in the dataset given the inputs and then summarizes the results.

Notes on Inflation:

The numbers this calculator outputs are not inflation adjusted, they are nominal values. The numbers don’t translate to actual purchasing power in the starting year of the simulation. However, this calculator does adjust the withdraw amount by the CPI each year of the simulation.

If you’re trying to work out how much you can afford to take from your pension in retirement, our drawdown calculator is a handy tool to get you started. It assumes that your pension pot remains invested throughout your retirement and that dividends are reinvested. Whereas other drawdown calculators tend to use a standard annual inflation rate, ours will test the value of your invested pension pot against real market conditions.

You can adjust the following variables:

• Retirement length
• Pension pot size
• Income amount
• Investment strategy

Some insights into the results this tool unearths:

1. You may be surprised to find that an “All Stock” portfolio is risky, but often not as risky in the long run as an “All Cash” portfolio. Why is this? Historically speaking, compared to cash, stocks have done a much better job of a) growing and b) keeping up with inflation.
2. Looking at the simulation high and low numbers (which can be mind-bogglingly wide), luck plays a role in the individual’s outcome. The year in which you retire could make a huge difference, but you won’t know until it is too late. For example, the simulations show that people who retired in 1975 were in great shape because of the economic booms in the 80s and 90s, but the people who retired in the mid-’60s didn’t live long enough to recoup their early losses.
3. Portfolios that blend stocks and bonds do a good job of bringing up the low end of the simulation, based on the historical data anyway. Diversification reduces risk but also reduces upside.
4. Each simulation sticks to the parameters you select. It always rebalances every year and withdraws the right amount. In reality, life happens, emergencies happen, and investors panic and sell in bad times. This pension drawdown calculator is purely for illustrative purposes only.

This calculator does not account for investments fees. The income amount is gross. You will need to adjust for taxes. This calculator does not take into account any State Pension you may receive. Cash figures are based on the Bank of England base rate – interest added annually using end of year interest rate.

Bonds figures 1900 -2014:  Barclays Equity Gilt Study 2016 using the Gilt index, the index has been constructed to represent a portfolio of 15-year par yielding gilts.  In this study, total returns are calculated assuming income is reinvested at the end of the year. Bonds from 2015:  iShares Core UK Gilts UCITS ETF, this Fund seeks to track the performance of an index composed of Sterling denominated UK government bonds, yield reinvested into total return.  The total expense ratio of this fund has not been included to reflect the fact that an investor holding a gilt directly would not pay this charge.

Stocks from 1900 – 2015:  Barclays Equity Gilt Study 2016 using UK Stocks from 1900 – 2015, in this study, total returns are calculated assuming income is reinvested at the end of the year. After 1985 we have used FTSE All-Shares total return See: http://www.swanlowpark.co.uk/ftseannual

Cost of living index uses Barclay’s Equity Gilt Study 2016, UK Cost of Living Index from 1900 -> 2014. For 2015 and beyond it uses http://www.swanlowpark.co.uk/retail-price-index

Again, this calculator uses backtesting. Past performance does not guarantee nor indicate future results.