How Much to Draw Down? | Money Saving Advisors
Get guidance on deciding how much pension to withdraw via drawdown without running out of money in retirement.
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The right balance from the start
Figuring out how much to take from your pension can be one of the trickiest retirement decisions. Take too much and you might run out later. Take too little and you might not get the lifestyle you've worked so hard for. This guide helps you strike the right balance with flexible drawdown.
Think long-term - not just about year one
You might be tempted to take out a big lump sum early on. But drawing too much could leave you short in later years - especially with inflation and rising living costs.
- Plan for 20–30 years: Most people underestimate how long they'll live. Taking modest, regular withdrawals can help your pot last longer. For many, 4% a year is a safe starting point, but it varies based on your goals, age, and how the investments do.
- Keep some money invested: Pension drawdown keeps your savings invested, so your money can keep growing. Taking out smaller amounts keeps your pot exposed to potential growth - meaning more flexibility later.
Use your tax-free allowance wisely
The first 25% of your pension can usually be taken as a tax-free lump sum. Beyond that, withdrawals are taxable - so it's important to draw smartly.
- Don't jump tax brackets: If you take a large sum in one go, it could push you into a higher income tax band for that year. Instead, spreading withdrawals over several years might reduce your tax burden.
- Combine with other income: If you have part-time earning or a state pension, factor those in. You might not need as much from your drawdown pot as you think. Using a mix of income can help you withdraw more efficiently.
Summing up
How much you take out of your pension is personal - but it pays to plan. Think about how long your money needs to last, remember the pension drawdown tax rules, and review regularly. A little care now can go a long way in making your pension work harder for you in retirement.
Frequently Asked Questions
How much can I safely take from my pension each year?
A common rule of thumb is around 4% of your pot each year, but it's not one-size-fits-all. The right figure for you depends on your age, health, lifestyle, and investment returns. Review annually and adjust as needed. Too much too soon can reduce your income later on, affect your tax code, and trigger the money purchase annual allowance (MPAA), which limits how much you can add to a DC pension.
Do I have to take from my pension pot when I retire?
No, not at all. Pension drawdown is flexible - you can leave your money invested and only start withdrawing when you need it. Some people delay taking pension income until after state pension age or when they stop part-time work. Waiting can allow your pension to grow for longer and delay paying tax on withdrawals.
Will I pay income tax on pension drawdown?
Usually, yes. While you can take the first 25% of your pension pot tax-free, any further withdrawals count as taxable income. If you take a large sum in one go, it could push you into a higher tax band for that year. To make sure you access your pension in the most tax efficient way, talk to a professional advisor before you start, and use our pension drawdown tax calculator for ballpark figures.
Can I change how much I take out later on?
Yes, you can. That's one of the main benefits of drawdown - it's flexible. You can increase, decrease, pause, or restart your withdrawals depending on your needs and the market. It's a good idea to check in on your pension performance and spending each year to make sure everything still fits.
What happens if I run out of pension funds?
If you take too much or your investments perform poorly, your pension pot could eventually run out. If that happens, you might still have other sources of retirement income - like the state pension - but your lifestyle could be affected. Building a long-term plan with professional advice can reduce this risk.
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