It is therefore vital that anyone who is considering income drawdown should appoint a financial adviser to monitor and review their pension fund and the amount of income withdrawn, to ensure that they do not run out of money in retirement.
Case Study - Meet Annabel and James
Annabel and James have private pension assets of £270,000 and were looking to retire, but did not know how to make best use if their pension fund, or how much income they would need.
Firstly, we examined their expenditure to understand what is deemed 'core' expenditure, such as household bills. It was established that Annabel and James needed £2,000 per month to cover these everyday costs. In addition, they also wanted to travel during the early years of retirement.
Next we reviewed their pensions to understand the options available from their existing arrangements, as well as how much state pension they will receive.
James was entitled to a full state pension of approximately £155 per week, however Annabel did not receive the full amount having taken time out of her career to raise children. In total, they were entitled to £261 per week state pension.
To provide income security in retirement, Annabel and James decided to buy an annuity with part of their pension funds, to provide additional guaranteed income of £1,650 per month, indexed linked.
With the remaining pension fund of £120,000, they opted to place these funds into a flexi-access income drawdown pension contract and withdraw an annual income of 3.5%.