By Giliker Flynn – Family-run independent financial advisers, helping families create sustainable retirement income strategies.
Why Decumulation Needs Its Own Strategy
Saving for retirement (accumulation) and spending in retirement (decumulation) are very different financial challenges.
During accumulation, the goal is to grow your pot through regular contributions and compounding investment returns.
During decumulation, the goal shifts to:
Generating sustainable income
Managing investment risk carefully
Protecting against inflation
Avoiding running out of money
This shift requires a different investment approach, different mindset, and often — different product mix.
The Core Challenges of Decumulation
Longevity risk – You might live longer than expected and need your pot to last 25+ years.
Sequencing risk – Poor market returns early in retirement can do disproportionate damage.
Inflation risk – Rising prices erode purchasing power over time.
Investment volatility – Markets fluctuate, and income needs remain constant.
Tax and IHT changes – How and when you draw income can affect tax outcomes.
A well-designed decumulation strategy manages all of these risks together.
Key Difference Between Accumulation and Decumulation
FactorAccumulationDecumulationObjectiveMaximise growthSustain income + preserve capitalInvestment horizonLong-termMedium to long-term (but income starts immediately)Risk toleranceTypically higherUsually lower, more balancedCash flowsRegular contributionsRegular withdrawalsMarket downturnsCan be ridden outMore damaging if they occur earlyFlexibilityBuild wealthBalance income, growth, and capital preservation
Understanding this shift is the first step to protecting your retirement income.
Principle 1: Build a Sustainable Withdrawal Strategy
Your investment strategy is only as good as your withdrawal strategy.
A sustainable withdrawal rate is typically 3.5–4% of your pot per year.
Lower withdrawal rates mean your pot is more likely to last through a long retirement.
Using phased withdrawals or adjusting for market conditions helps smooth income.
Example:
£500,000 pot
4% withdrawal = £20,000 annual income
If returns keep pace with inflation, the pot can last 30+ years.
But if you withdraw 7–8% a year, the risk of running out in your 80s or even 70s is much higher.
Principle 2: Manage Sequencing Risk
Sequencing risk happens when your portfolio suffers losses early in retirement, just as you start making withdrawals.
For example:
Investor A experiences negative returns in the first 5 years.
Investor B experiences negative returns in the last 5 years.
Even with the same average return, Investor A’s pot depletes faster.
How to Reduce Sequencing Risk
Keep 1–3 years of withdrawals in cash or low-risk assets.
Diversify across asset classes (e.g. bonds, equities, alternatives).
Adjust withdrawals in poor market years.
Blend guaranteed income (e.g. annuities) with flexible drawdown.
This creates resilience, allowing you to ride out market downturns without locking in losses.
Principle 3: Use a Layered or “Bucket” Strategy
A practical decumulation framework is to segment your pension pot by time horizon:
Short-term bucket – 1–3 years of income in cash or low-risk bonds.
Provides stability and protects against sequencing risk.
Medium-term bucket – 3–10 years in a mix of bonds and lower-volatility assets.
Balances income stability with modest growth.
Long-term bucket – 10+ years in equities or growth assets.
Drives inflation protection and long-term returns.
Withdrawals come from the short-term bucket, which is regularly replenished from the other buckets in a structured way.
This approach is widely used in evidence-based retirement income planning.
Principle 4: Balance Growth with Protection
Many retirees make the mistake of becoming too conservative too quickly.
While it’s wise to reduce volatility, being entirely in cash or bonds may:
Fail to keep up with inflation
Deplete the pot too quickly
Reduce flexibility later in life
Equities and growth assets still have a vital role in decumulation, particularly for funding income needs 10+ years out.
A Balanced Asset Mix Might Include:
Equities (UK and global) for growth
Bonds for stability and income
Cash for short-term needs
Alternatives (depending on risk appetite)
This balance needs to be reviewed regularly as your circumstances change.
Principle 5: Incorporate Tax Planning
Tax efficiency is a core pillar of a good decumulation strategy.
25% of your pension is usually tax-free.
The rest is taxed at your marginal income tax rate.
Drawing income below the higher rate threshold can significantly stretch your pot.
Combining ISAs and pensions allows for tax-efficient income layering.
Example:
Draw £20,000 from pension + £10,000 ISA income
ISA income is tax-free
Total spending = £30,000, but only £20,000 taxed
This can extend the life of the pot by years compared to drawing the full amount from the pension.
Principle 6: Plan Around Inflation
Inflation is one of the biggest silent threats to retirement income.
A £25,000 income today could need over £40,000 in 20 years at 2.5% inflation.
Fixed withdrawals may not be enough to sustain your lifestyle.
Ways to Build Inflation Protection
Keep a portion of the portfolio in growth assets.
Consider escalating withdrawals or inflation-linked annuities for part of the income.
Revisit your withdrawal rate regularly to stay aligned with real costs.
Principle 7: Blend Drawdown with Guaranteed Income
A common strategy is to cover essential living costs with secure income, and use drawdown for discretionary spending.
Sources of guaranteed income can include:
State Pension
Defined benefit pensions
Lifetime or fixed-term annuities
Benefits of blending:
Reduces pressure on the drawdown pot
Makes income more resilient to market shocks
Can extend the drawdown pot’s lifespan dramatically
For many people, a hybrid strategy is more sustainable than drawdown alone.
Principle 8: Consider IHT and Legacy Planning Early
From April 2027, unused pension pots will be included in your estate for IHT.
That means your decumulation strategy now plays a direct role in estate planning:
Gradual withdrawals can reduce taxable estate size
Strategic gifting can start the seven-year IHT clock
Blended strategies can minimise both income tax and IHT exposure
Decumulation is no longer just about your income — it’s also about protecting your family’s inheritance.
Principle 9: Keep Fees and Costs Under Control
High fees compound against you in decumulation just as investment returns compound for you in accumulation.
Platform fees
Fund management fees
Adviser fees
Trading or switching costs
Even 1% extra in costs can reduce the lifespan of your pot by several years.
Low-cost, well-diversified investments are a core ingredient in sustainable decumulation.
Principle 10: Regular Reviews and Adjustments
A good decumulation strategy is dynamic, not static.
Review at least once a year
Rebalance buckets and allocations
Adjust withdrawals based on markets, inflation, or lifestyle changes
Revisit tax strategy and estate planning regularly
This ongoing attention can significantly extend the life of your pension income.
Case Studies
Case Study 1 — Bucket Strategy in Action
Linda, 64, has a £600,000 pension. She sets up a 3-bucket strategy:
£60,000 in cash (short-term)
£240,000 in bonds and defensive assets (medium-term)
£300,000 in global equities (long-term)
She draws from the short-term bucket each year and replenishes it from the others.
Her income remains stable, and she avoids selling equities during market dips.
Case Study 2 — Tax-Efficient Drawdown
Graham, 66, wants £40,000 annual income. He:
Draws £25,000 from his pension
Tops up £15,000 from ISAs
Keeps taxable income below the higher rate threshold
Reduces tax drag and extends the life of his pension pot
Case Study 3 — Blended Income Strategy
Helen and Mark, both 68, use:
£200,000 for an annuity to cover essentials
£400,000 in drawdown for flexibility
A modest withdrawal rate of 3.5%
Their income remains stable for life, and their drawdown pot lasts longer than projected.
Common Mistakes to Avoid
Using an accumulation portfolio for decumulation
Withdrawing too much too soon
Ignoring inflation and sequencing risk
Not structuring income tax-efficiently
Failing to review regularly
Paying high fees without clear value
Our View at Giliker Flynn
A decumulation investment strategy is not about maximising growth — it’s about maximising how long your income lasts.
A layered investment approach
A disciplined withdrawal plan
Smart tax and IHT management
Blending guaranteed and flexible income
Regular review and adjustment
These are the pillars of a retirement income plan that can weather decades of change.
Practical Next Steps
Clarify your essential vs discretionary spending.
Set a sustainable withdrawal rate.
Design a layered investment structure that matches your horizon.
Blend guaranteed income and drawdown where appropriate.
Optimise for tax efficiency and IHT planning.
Keep costs low and review annually.
Work with a regulated adviser to build a personalised strategy.
Conclusion
Your pension isn’t just a savings pot — it’s your income engine for the rest of your life.
A thoughtful decumulation strategy can help you enjoy your retirement confidently without the fear of running out of money.
Important: Tax and pension rules can change, and their value depends on your circumstances. Always seek regulated financial advice before making decisions.
Giliker Flynn is a family-run, independent financial advice firm helping people across the UK turn their pension savings into sustainable, tax-efficient income that lasts for life.