Pension Drawdown & Income Sustainability Calculator

Pension Drawdown Guide

What's the key thing to understand about Safe Withdrawal Rates?

The 4% rule: research by William Bengen (1994) found 4% initial withdrawal, increased annually with inflation, lasted 30+ years in 95%+ of historical scenarios. Assumed 50/50 stocks/bonds. Modern UK perspective: more conservative — start at 3.5%. Bonds yields lower now than in Bengen's data. Markets have higher valuations. Adjustments: higher withdrawal (5%+): higher risk of running out before death. Lower withdrawal (3%): safer but lower lifestyle. Variable withdrawal: adjust each year based on portfolio performance, taking less in poor years and more in good years to reduce the risk of running out.

What's the key thing to understand about Sequence-of-Returns Risk?

When you retire matters as much as how much you save. Negative returns in early retirement years are devastating to portfolio longevity. Same long-term average return, different sequences: portfolio that gains then loses lasts decades longer than portfolio that loses then gains. Mitigation strategies: hold cash buffer 2-3 years before retirement. Reduce withdrawals in bear markets — skip inflation increases, or reduce by 10-20%. Don't sell during downturns — withdraw from cash/bonds instead. Annuitising a portion of the pot can provide a guaranteed income floor to cover essential expenses, reducing reliance on withdrawals from a potentially volatile drawdown portfolio.

What's the key thing to understand about Tax on Pension Drawdown?

25% tax-free lump sum: can take in one go OR spread across smaller chunks (UFPLS — Uncrystallised Funds Pension Lump Sum). 75% taxable as income: added to other income. Tax bands as normal. Personal Allowance: £12,570 — first slice tax-free. Combined State Pension and drawdown can push you into higher tax bands. Inheritance: pensions pass IHT-free until April 2027 (Autumn 2024 Budget proposes inclusion from then). Lifetime Allowance: abolished April 2024 — no longer a concern for most. But lump sum withdrawals above the 25% tax-free portion are taxed as income in the year they're taken, so large one-off withdrawals can push you into a higher tax bracket unexpectedly.

What's the key thing to understand about Avoiding Running Out?

Big risks to long retirement income: living longer than expected. Life expectancy: 65-year-old today has ~50% chance of reaching 87 (men) or 89 (women). Plan for 25-30 years of retirement. Inflation. Even 2% inflation halves purchasing power in 35 years. 5% inflation halves in 14 years. State Pension increases with triple lock but private pension income often doesn't. Care home costs. £40,000-80,000/year in later years. May exhaust portfolio rapidly. Some equity release options. Health needs. Inflation erodes fixed withdrawal amounts over a long retirement, so building in some allowance for rising costs each year is important when planning how long a pot needs to last.