Deciding how to secure an income from your pension pot will be a key part of retirement planning, yet unfortunately, it seems that not everyone is giving it the attention it deserves. Indeed, research from Zurich suggests many retirees are entering drawdown with no planning whatsoever, and instead are relying on luck and guesswork when it comes to deciding how much to withdraw each year.
The research found that just a third (34%) of retirees in drawdown calculated how much income they'd need to generate from their pension pot before they retired – the same proportion worked out how much they'd need to cover living expenses and how long they'd need their money to last, while just 22% calculated how much they'd need to fund leisure activities – which means the majority aren't even taking basic steps to work out how much they can afford to take from their pot.
This means a worrying proportion of retirees are at risk of draining their pension savings too early, a concern compounded by the fact that very few think about where they'll continue to invest their drawdown funds during retirement. Just 16% decided where they'd invest their funds to achieve their desired income, for example, and only 17% thought about the strategy they'd use to withdraw that income, such as selling shares or living off the dividends.
It appears that many retirees are leaving the fate of their financial future to guesswork, and Zurich is instead urging people to make sure they have a suitable plan in place well before they move into drawdown. This includes researching drawdown providers, thinking about how much you'll be spending in retirement and how long you'll need your funds to last, calculating how much income you can afford to withdraw each year and considering the kind of funds you'll invest in, and of course, seeking suitable advice is key.
"Many retirees in drawdown are relying on blind luck to make their savings last throughout retirement," said Alistair Wilson, Zurich's head of Retail Platform Strategy. "But by taking simple steps to work out how much they can afford to take from their pot, savers can avoid withdrawing too much, too soon. Setting a sustainable level of drawdown income in drawdown can be something best done by speaking with a financial adviser, or getting free guidance from Pension Wise."
As Alistair Wilson noted, taking the time to work out how much you can take from your pot – bearing in mind things like day-to-day living expenses, life expectancy, investment strategy and additional expenditure – is key. This could of course be tricky to achieve on your own, so make sure to seek advice to ensure you stand the best possible chance of securing the income you need throughout your retirement.
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