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Drawdown Golden rules

 
  • Before you take any risk with your income make sure you have enough secured income
  • Understand the risks – really understand the risks
  • Make sure you have researched the alternatives

Make sure you have enough secured income 

When you were working, if you were given a choice between a high guaranteed basic salary and a low bonus or a low guaranteed basic but high bonus which was conditional on performance, which one would you choose?

If you are the type of person who prefers the security of a high basic becuase you worry about not earning a bigger enough bonus surely you take the same approach with your retirement income.

However, if you are the type who preferred a low basic but higher bonus because you were confident and optimistic that you would earn a large bonus then you maybe an ideal drawdown client.

 

Income Pyramid

Generally speaking, you should make sure the income you need for everyday expenditure is secure but the income you need for non-essential expenditure (eating out and entertainment) can be less secure i.e. drawdown.

This is called the 'income pyramid'

Understand the risks

You will probably understand the risk that the stockmarkt can go up or down, but there are other less obvious risks with drawdown. These risks include:

  • Risk of running out money - To reduce this risk you should work out the "Safe Withdrawal Rate
  • Sequence of returns risk - More about this important risk

Sequence of returns risk

This is the risk that investment returns will be lower than expected or negative in the early stages of drawdown resulting in the value of your pension pot reducing in value quicker than anticipated. If this happens, your drawdown fund may not be able to sustain future income payments and there is increased risk of lower income. If things are really bad you could run out of money in your pension.

£ 100,000 was invested in July 2011 and income equivalent to a single life annuity (age 65, guaranteed 5 years and level payments) of £ 6,500 per annum gross (£ 542 per month) is paid. The fund was invested in a typical pension fund which 60% equity content. The chart shows the value of the fund each month. There is a fall in value in September 2011, again in May 2012 and then from July 2015 to July 2016 before a strong rally thereafter before the market correction in early 2018.

Make sure you have researched the alternatives

If I had a pound for every client who started out by saying "Mr Burrows, I know exacly what I want, only to change their minds after I exlained all the other options, I wouldn't being writing these pages becuase I would be rich.

Before you commitment to any retirement income solution please make sure you have considered all the options just in case their is a better solution for you.

William Burrows

Offices in London, Northampton and Cardiff

Call: 07730 435 657

 

William Burrows / Retirement Intelligence Ltd
International House
24 Holborn Viaduct
London
EC1A 2BN
Better Retirement
400 Pavilion Drive
Northampton
NN4 7PA 

If you need help or advice - Contact us

As one of the most respected specialist retirement advisers, William Burrows and Better Retirement will be pleased to help you make the right decisions at any stage of your retirement journey.

Call or email now for a free and without commitment chat.

This website is run by William Burrows and publishes generic information on annuities, drawdown and other related retirement income matters. Any information you use is at your own risk and does not constitute financial advice.

If you require financial advice you will be advised by Better Retirement where William Burrows is authorised to give investment advice. Better Retirement Group Ltd is authorised and regulated by the Financial Conduct Authority, reference number 153420.