Pension Drawdown Calculator

From age 55 (57 from 2028) you can move your pension into flexi-access drawdown: take up to 25% as a tax-free lump sum, leave the rest invested, and withdraw income as you choose. Withdrawals beyond the tax-free cash are taxed as income. Unlike an annuity, your pot stays invested so it can keep growing, but it can also fall, and you bear the risk of it running out.

A widely used guide is to withdraw around 4% of the pot a year, which historically gave a good chance of the money lasting 30 years. Take much more and you risk depleting the pot, especially if markets fall early in retirement, a problem called sequence-of-returns risk. The calculator shows when your chosen income would exhaust the pot at your growth assumption.

The 25% tax-free cash is just that, tax-free. Everything else you withdraw is added to your income for the year and taxed at your marginal rate, so large withdrawals can push you into a higher tax band. Spreading withdrawals across tax years, and using your personal allowance and any ISA income, can reduce the tax you pay. Taking a big lump sum in one year is often the costliest approach.

An annuity swaps your pot for a guaranteed income for life, certainty, but no flexibility or inheritance of the pot (depending on options). Drawdown offers flexibility, growth potential and the ability to leave the pot to heirs, but with investment risk and the chance of running out. Many people blend the two: an annuity to cover essential bills, drawdown for the rest.

• Withdrawing too much too soon. A high early withdrawal rate, especially in a downturn, can exhaust the pot. Stay near a sustainable rate.
• Taking a big taxable lump sum. Large one-off withdrawals can push you into higher tax. Spread them across tax years.
• Leaving cash uninvested. Holding the whole pot in cash during a long retirement risks inflation eroding it.
• Going it alone on big decisions. Drawdown is complex and irreversible in parts, consider regulated advice or Pension Wise (free).