- Retirement income strategies are focussed primarily on managing the risk of running out of money, while at the same time, delivering a level of income that meets your needs as much as possible.
- When retired, having a robust strategy to manage withdrawals and monitor the longevity of your retirement pot is key.
For over a decade in the UK, retirees have enjoyed ‘Pension Freedoms’. In other words, they have had greater flexibility in how they wish to draw an income from their retirement savings. Prior to that point, retirees were required to use their pension pot to purchase an annuity – a contract that guarantees an income for life. However, while freedoms bring choice, they can also create some complexity. If not buying an annuity, how do you decide on the best strategy when drawing an income and importantly, how do you avoid running out of money? This short guide explores the topic of drawing a retirement income and sheds some light on several essential concepts.
At its simplest, saving for retirement involves accumulating assets through your working life, often using a pension for its tax efficiency, and then drawing an income from that pension when you come to retire. These two phases are sometimes described as the accumulation phase and the decumulation phase.
When you come to retire, the sum you have accumulated becomes your source of income. There are a variety of ways to take an income when you retire, and your financial adviser is well placed to advise on the most appropriate approach for you.
Having spent your working life accumulating retirement savings, it’s important to adopt a retirement income strategy that will balance your need for income with the need to manage the risk of running out of money.
