For retirement, drawdown can be your flexible friend

THE number of pension savers choosing to access their pots more flexibly continues to rise, the latest figures reveal.

Drawdown products, where savers take cash in chunks as and when they wish, are now the most popular option for pension savers.

Latest data from the Financial Conduct Authority shows that £22.4billion worth of pension savings were placed into flexible drawdown products in 2017/18, compared to £4.3bn placed into annuities which pay out a regular income for life.

However, those choosing flexible drawdown need to ensure they don’t raid their pots too quickly as they could end up running out of cash too soon.

We’ve teamed up with insurer Royal London to bring you their seven top tips to help ensure your savings last as long as you do.

1 Speak to a financial adviser

Managing a drawdown portfolio can be complicated and an independent financial adviser will help you deal with the risks.

They can offer advice on how to make your income last throughout retirement. To do this they will ensure you are investing in the most suitable assets, and that you aren’t taking out too much or too little income.

2 Is now the right time?

You may have reached an age where you are able to take a retirement income, but ask yourself whether you really need to do so right now. The age of 55 is not a deadline, it is just the starting point of when you can access your pension savings. It may be a good time to check how your savings are doing and to ensure you are on track to build up the pension pot you want to see you through retirement, and to find out if you need to make any changes.

Do you have income coming in from other areas, say from an ISA, another pension or paid employment, that you can use to meet your current needs?

If so, it might be better to leave your pension where it is for now so you can take slightly higher withdrawals at a later date.

3 Keep an eye on how much you are taking

It can be tempting, particularly early on in retirement, to think the money will last forever and to start taking cash in large chunks to pay for things such as holidays.

However, if you do this too often you risk reducing the amount of income you can take later on. You may even run out of money. Work out how much money you need in advance and make a plan.

4 Taxing issues

Taking large withdrawals may also mean you pay more tax. Timing can be vital when accessing pension savings.

For instance, not accessing savings until the tax year after you finish work can mean you pay less. Taking out smaller amounts could also keep you in the lower tax bracket.

Working with an adviser will help you stay within the limits and ensure you take your income in the most tax efficient way.

5 Costs and charges

It is really important to keep an eye on how much you are paying for a withdrawal product. Charges vary according to which provider you use and you will have to pay ongoing charges for investments to be managed.

You will also need to factor in things such as set-up costs. These can mount up so it’s worth monitoring them to make sure you are getting the best deal, and to know the effect they have on your pot.

6 Keep an eye on investment markets

Investment markets can go down as well as up and a rocky time on the markets can reduce how much your income drawdown fund is worth.

A financial adviser can give you advice on how to minimise any reduction and may advise you to change what you are invested in, or reduce the amount of income you take until markets recover.

7 Is this still the right thing for me?

Retirement is a journey and what might be right for you at the age of 65 might not be when you reach 75 or 80.

You may not have the time or want to take the risk of managing an investment portfolio anymore and you might decide the time is right to purchase an annuity which will pay you a guaranteed income for the rest of your life.

It is important to ask yourself throughout retirement whether you feel income drawdown is still the right option for you.

Flexibility is one of the reasons many people choose income drawdown products, compared to buying an annuity when they first access pension savings. Make sure you take full advantage of the control drawdown gives, but if it stops making sense, move on.

Retirement is a journey and what might be right for you at 65 may not be right at 75 or 80. Be ready to move on