Breaking Down Drawdown: Could it Be the Right Option For You?

Retiring is an incredibly personal thing, and each and every one of us have different goals, dreams, and ambitions.

For example, you may plan on travelling all around the world throughout your retirement. Or, you may be considering splashing out on a brand-new kitchen.

Here at My Pension Expert, we want to help you achieve your retirement dreams, regardless of what they may be. And the first step is finding a pension solution that will help you do just that.

For some, a flexible access drawdown could be a plan that makes a dream a reality. But how exactly do they work?

We’ve got you covered with our breakdown of your drawdown.

Back to Basics

In short, a flexible access drawdown is a pension product that allows retirees greater flexibility when it comes to how and when they receive their retirement income.

With taking out a drawdown, you’re allowed to take up to 25% of your pension as a tax-free lump sum and leave the rest of the pot invested. From there, you can take amounts out as and when you need to.

It’s also worth noting that when you take out a drawdown, you have the option to change products, depending on your needs and circumstances. So, for example, you could use all or part of the money in your drawdown to buy a guaranteed income (annuity) if you felt these options would better suit you later down the line.

What Are the Benefits?

There are many benefits to a flexible access drawdown, which may just suit your personal goals. Drawdowns allow for greater flexibility meaning that you have control over exactly how much you want to withdraw and exactly when you would want to do so. This means you can agree to withdraw a set amount each month, for example, or decide to take out a little bit more or less, depending on your plans.

Further, as the money you don’t withdraw remains invested, there is the potential that your savings to continue growing in value. With your pension growing, this decreases the chances of your money running out in your retirement.

It’s also important to note that you are not wedded to one drawdown product throughout your retirement. If your current drawdown no longer suits your circumstances – the risk level is slightly too high, for example, it is possible to change portfolios to one with a lower risk. Such flexibility can be an incredibly useful tool throughout retirement.

Points to Consider

Whilst drawdowns might sound like the dream product at first glance, it’s important to take a step back and consider whether it really would be the right option for you.

Firstly, it is important to consider how much risk you’re comfortable with incorporating into your retirement strategy. As mentioned earlier, with a drawdown, your money is invested, which means that your capital is at risk. Investments can increase but they can also decrease depending on how the fund is performing, regardless of how well it has done in the past.

Each portfolio holds a varying level of risk, and it’s important to understand what risk level you are capable of taking on. For example, whilst portfolios with higher levels of risk present the opportunity for a higher reward, they also pose a greater risk of loss or performance volatility. So, when deciding whether drawdown is right for you, it is important to assess how you feel about risk and how much you can afford to incorporate into your retirement plan. If you aren’t comfortable with much risk, it might be wise to consider alternative products.

And of course, there are other options out there which could suit better your needs, such as an annuity which offers retirees a fixed income for the rest of their lives (or a set period, depending on what is agreed with their provider). For some, the security of a no-risk guaranteed income could be more appealing.

Advice is on Hand!

The key to a happy retirement is finding the right option for you. If you are unsure of which pension product would best suit your retirement, financial advice is here to help.

Recently launched, our Drawdown Calculator will help you visualise what your retirement could look like. Using simple details such as your age and your current pension fund, will allow you to see how much income you could take, and how certain factors could affect your pension sustainability.

Once you’ve got a decent idea about what you could get from a drawdown, our team or advisers at My Pension Expert are here to help you to the next step in your retirement journey. They can talk you through the various options that could suit your lifestyle or any alternatives that you may not have considered, allowing you to achieve your retirement goals, whatever they may be!

If you’re curious about flexible access drawdowns, or simply want to find out more about the different pension products that are available to you, speak to a member of our team today.