Why use a pension drawdown calculator

If you’re planning for a comfortable retirement, a pension drawdown calculator can be a really useful tool. It estimates how long your funds will last, giving you a clear picture of your future standard of living.

Our calculator allows you to forecast how long your pension might last based on your income. It can also account for inflation and your state pension. Give it a try. 

Inputting Your Details

To use the Pension Drawdown Calculator effectively, you’ll need to enter specific details about your retirement plans and financial situation.

Start by inputting the following information:

• Your current age and the age you intend to retire. The calculator will assume some growth until you start drawing down an income at retirement. 
• The current value of your pension funds
• The annual income you wish to withdraw

The calculator will then show you how long your income might last based on your withdrawal. 

It shows you three different growth rates

• Poor (-1%) – This is to show the effect of poor market performance on your portfolio. This could happen with unfavourable market conditions or a poorly managed portfolio.
• Chosen (5%) – This defaults to 5% at the outset, but you can adjust it with the slider to show how different growth rates affect the longevity of your pension.
• Good (8%) – This shows a good average performance of 8%. The overall risk of this portfolio is likely to be higher to achieve these returns, but it is possible.

You are also shown what the average age of death is for someone your age based on the Office for National Statistics data.

You have the option to add inflation to your income withdrawals (at 2%). This provides a more accurate forecast as the cost of living will increase over your retirement and you may have to increase your withdrawals to keep pace with these costs.

You also have the option to include a state pension into the forecast. When you reach 67, your state pension will start providing you with additional income. The calculator reduces the income taken from the fund by the state pension amount to increase the longevity of the fund. This can be toggled on and off and changed if you have a different pension forecast. You can get a pension forecast here.

• Retirement Planning Tool – With a pension drawdown calculator, you can understand your retirement strategy to see if your savings will keep pace with your future needs. The retirement planning tool can be used by anyone with a defined contribution pension who’s seeking flexible income options after age 55.

When you use our pension drawdown calculator, you’ll see how long your pension pot could last, helping you to make informed choices about when to access your pension and how much to withdraw each year. It’s approved by the Financial Conduct Authority, so you know you’re getting reliable guidance.

• Financial Longevity Estimation – Assess if your fund size and required income will be sustainable throughout retirement. We show you the average age of morality for someone your age and when your funds might last until. 

If you’re a few years away from retirement, you might be able to make up any shortfall once you understand how your income withdrawals affect your pension.

Consider the length of your retirement

When evaluating the length of your retirement, you’ll want to think about your overall health and medical history, as these factors can greatly impact your life expectancy. Your health and medical history can provide valuable insights into how long your retirement might last.

If you’ve had health issues in the past or are currently dealing with a chronic condition, this could affect your life expectancy and, in turn, the length of your retirement.

Consider the income withdrawal rate

How much of your pension can you afford to withdraw each year without risking depletion?

It’s important to determine a sustainable withdrawal rate to guarantee your pension lasts throughout your retirement. Withdrawing too much can lead to depletion while withdrawing too little might leave a large fund unutilized.

The 4% rule is a widely accepted guideline for determining a suitable withdrawal rate. This rule suggests that you can safely withdraw 4% of your pension balance each year, adjusted for inflation.

However, this is just a starting point, and you should consider your individual circumstances, such as your life expectancy, expenses, and other sources of income.

When considering your withdrawal rate, think about your retirement goals and expenses. Will you need to cover essential outgoings, or do you have other sources of income to fall back on?

Be realistic about your spending habits and adjust your withdrawal rate accordingly. The pension drawdown calculator can help you determine a suitable withdrawal amount based on your pension balance and other factors.

Your Portfolio

You’re likely aware that your pension fund’s investment strategy plays a significant role in determining its growth and sustainability.

When evaluating where your fund is invested, it’s important to determine how much risk you’re prepared to take on. This involves assessing your investment experience and your ability to manage and adjust your portfolio as needed.

Your willingness to manage and keep an eye on your investments in retirement is also vital. If you’re not comfortable with the idea of actively managing your investments, you may want to contemplate a more conservative or low-maintenance investment strategy.

On the other hand, if you’re willing and able to take on more risk, you may be able to achieve higher returns.

Ultimately, your investment strategy should be aligned with your overall financial goals and risk tolerance.

By carefully examining your investment options and risk profile, you can create a sustainable and growth-oriented pension fund that supports your retirement plans.

Your State Pension

As you factor in your personal savings for retirement, don’t forget to include your State Pension details to get a complete picture of your future income.

Your State Pension is a significant financial foundation that will contribute to your overall income in retirement. To accurately estimate how much money you’ll have and how long your pension will last, input your individual circumstances into the Pension Drawdown Calculator.

Consider the rate of inflation and how it may affect your purchasing power.

By including your State Pension information, you’ll gain insight into the income you could receive, helping you plan the amount you need to draw from your personal pension to enjoy a comfortable money flow in retirement.

Comparing Drawdown and Annuity

Managing your pension pot in retirement often boils down to two popular options: annuities and income drawdown. When deciding between the two, you should consider your income needs and investment goals. Annuities provide a guaranteed income for life, offering predictable income regardless of market conditions.

On the other hand, income drawdown allows you to withdraw funds flexibly from your pension pot, which can remain invested for potential growth. However, you should be aware that the value of investments in an income drawdown strategy can fluctuate, potentially affecting the sustainability of withdrawals.

Additionally, withdrawals from drawdown are subject to income tax. In contrast, annuity payments are also taxed but may offer more stable tax planning due to fixed income. You’ll need to assess your risk tolerance and investment knowledge when choosing between annuities and income drawdown.

If you’re comfortable with managing your pension pot and taking on investment risk, income drawdown may be suitable. Otherwise, an annuity’s guaranteed income may be a better option. It’s crucial to weigh your options carefully to make sure you make the best decision for your retirement.

Conclusion

With your pension drawdown calculator results in hand, you’re now equipped to make savvy retirement choices. Adjust your strategy to stretch your savings, considering annuities for guaranteed income.

It’s your roadmap to a secure, fulfilling retirement. Dive in, tweak, and plan confidently. If you need help turning your pension into an income, please get in touch.