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How much can you afford to take from your pension at retirement?
Pension drawdown enables you to use your pension pot to enjoy a regular retirement income, while allowing your investment to keep on growing in the background.
By using our pension drawdown calculator, you will:
- find out how much you can afford to draw from your pension at retirement
- discover how your retirement length will impact your pension pot over time
- see the different impacts on your pension over the long term depending on how much you take out of it
- get a better understanding of how much you need to save and put away for your retirement
How our pension drawdown calculator works
Our pension drawdown calculator tests the value of your invested pension pot against real market conditions. It’s been programmed from UK market data across the last 120 years, including booms, busts, world wars and the UK and global stock market crashes; basically, every market condition you could ever imagine.
All you have to do is tell our calculator how big your pension pot is, how much you want to take in retirement income every year and how long you’d like to continue doing this for. We’ll do the rest.
User Guide for our Pension Drawdown Calculator
What does pension drawdown mean?
Pension drawdown is a flexible way of accessing your defined contribution pension from age 55. It allows you access your pension in a number ways including:
- taking a regular income in retirement, or
- taking one-off cash lump sums from your pension over time
With pension drawdown you are free to take as much or as little as you want from your pension pot but it's up to you to manage any withdrawals to make sure that you don't run out of money.
Our pension drawdown calculator will show how likely it is that your pension pot will last you through retirement.
How much should I drawdown from my pension?
Experts recommend sticking to the safe withdrawal rate. It’s recommended that you don’t take more than 4% of your pension pot in 1 year.
In theory, this leaves enough of your pension invested that the growth of your investment over time should cover any withdrawals you make.
This is important because none of us know how long we’re going to live and you might well live to see your 90s.
In fact research released by the People’s Pension in 2021 showed that up to 74 per cent of people could be spending their pension savings at a speed, which at best, means they will run out of money in their mid to early 80s. So it’s more important than ever to not withdraw too much from your pension.
Getting the most out of our pension drawdown calculator
Length of retirement
The longer you live, the longer your pension must last. Stress-test your pension pot by adding in different lengths of retirement to see how it could impact you.
Value of pension at retirement
If you already know how much your pension pot is going to be worth by the time you retire, this is where you need to add in that figure. If not, we can help.
Consider how much you plan to withdraw in your 1st year of retirement (not including state pension, other pensions or income sources). Not sure how much income you'll need in retirement?
Speak to a retirement planning specialist
Filled in the calculator and not sure what the best course of action is for you? Arrange a free consultation with a member of our team. We’d love to connect.
Frequently Asked Questions
While it is possible to draw everything out of your pension, it isn’t a good idea. You will end up paying tax (at the highest rate) on 75% of your pension, meaning you stand to lose a substantial amount of your hard-earned investment.
You can, however, take out 25% as a tax-free lump sum and leave the rest invested into funds designed to provide you with a regular taxable income.
You set the income you want, although this might be adjusted periodically depending on the performance of your investments or changes to your lifestyle.
It's important to remember that your pension is supposed to support you for life. If you drawdown too much of your pension too quickly, you could run out of money in retirement and be forced to live on the state pension alone.
Pensions are taxable at your marginal rate of income tax, which means that you can use your personal tax allowance every year to access your pension without paying tax on it.
You can also access 25% of your pension pot tax-free; this means you can blend tax-free cash from your pension along with using your personal tax-allowance to access even more of your pension tax-free.
A pension is a tax-efficient savings vehicle - one of the best around - but once you take your money out of your pension you start incurring tax on your withdrawals.
If you don’t need to access your pension, then you’re better to leave it invested and take it as monthly income (rather than taking it out as a lump sum).
If you do decide to take your pension as a lump sum:
- The first 25% is tax free but you’ll pay income tax on the rest at your highest rate
- You could be liable for other taxes if you reinvest your money elsewhere for example into property
- You could become liable for Inheritance tax at 40%
Pros and cons of pension drawdown include:
- It’s flexible - you can take more when you need it and less when you don’t
- You can manage your withdrawals tax-efficiently
- You may be able to defer paying Lifetime Allowance tax until you are 75
- You can pass any left-over money onto beneficiaries free of Inheritance tax
- As long as it’s regulated by the FCA, it’s protected by the Financial Services Compensation Scheme
- You can convert it to an annuity at any point in the future if you decide to.
- However, you need to manage your money carefully to make sure you don’t run out
- Once it’s gone, it’s gone. It’s not guaranteed for life like an annuity or Defined Benefit Pension
Pros and cons of annuity include:
- It’s a guaranteed income for life: it will continue to pay out, even if you live to 120
- As long as it’s regulated by the FCA, it’s protected by the Financial Services Compensation Scheme.
- It can be adjusted for inflation (although not all annuity policies offer this)
- If you have life-limiting health issues it is possible to be offered a higher income due to your lowered life expectancy
- An annuity generally dies with you, and cannot be passed on to loved ones if you die young (although there are exceptions to this, they are rare and expensive).
- It offers a fixed income every month, so you can’t manage your income for tax-purposes or defer your Lifetime Allowance tax payment
A considerable benefit of drawdown pension is that it allows you to pass money on to any named beneficiary/s after you die, totally free of inheritance tax. Depending on how old you are when you die, it could be free of income tax too.
It’s pretty straightforward: you just need to request and submit a ‘nomination of beneficiaries’ form.
If you have several pension providers, you will have to do this with each of them.
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This pension drawdown calculator is provided for general information purposes only. It is a guide and does not reflect the actual amount that you will need in retirement.
Any information contained within this website should not be deemed to constitute financial advice, and should not be relied upon as the basis for a decision to enter into a transaction, or as the basis for any financial or investment decision. It is provided for general information and it is vital (and in most cases a regulatory requirement) that you contact a Financial Adviser for tailored professional advice in regard to pension and retirement planning.
- No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.
- If you are a member of a pension scheme with safeguarded benefits, it is likely it would be in your best interests to retain the safeguarded benefits.
- Make sure you understand all the risks before investing.
- The value of investments and the income they produce can fall as well as rise and you may not get back your original investment. Past performance is not a reliable indicator of future results.