By Giliker Flynn – Family-run independent financial advisers, helping families make their pension income last for life.
Why Drawdown Longevity Matters
When you choose drawdown, your pension remains invested, and you decide how much income to take and when.
This gives you flexibility but also introduces longevity and market risk.
Your drawdown pot can run out if:
You withdraw too much, too quickly
Investment returns are lower than expected
Markets fall early in retirement (known as sequencing risk)
You don’t adapt your withdrawals over time
With people living longer and retirement often lasting 25–30 years or more, making your pension last is one of the most important financial planning challenges you’ll face.
Understanding Drawdown Basics
How Drawdown Works
You crystallise your pension and can take up to 25% tax-free.
The rest remains invested and you can draw an income whenever you choose.
You can invest in funds, shares, bonds, or other assets.
Withdrawals are taxed as income at your marginal rate.
Any unspent pot can be passed on to beneficiaries, subject to tax and (from 2027) IHT rules.
Why It’s Attractive
Control and flexibility
Potential for investment growth
Inheritance benefits
Ability to adapt to changing circumstances
The trade-off? Unlike an annuity, the income isn’t guaranteed — and careful planning is required to avoid depleting the pot too early.
The Sustainability Challenge
Two retirees with the same pension pot can end up in very different situations depending on how they manage it.
Key factors affecting sustainability:
Withdrawal rate
Investment returns
Inflation
Fees and charges
Timing of withdrawals (sequencing)
Tax efficiency
Managing these factors well can mean the difference between a pension pot lasting 20 years or 35 years.
Step 1: Get the Withdrawal Rate Right
Your withdrawal rate is the percentage of your pot you take each year.
A common rule of thumb is 3.5% to 4% per year for sustainable income.
But this isn’t a guarantee — it depends on investment returns, inflation, and your personal circumstances.
A lower withdrawal rate gives your pot more time to grow and recover from market dips.
Example:
£400,000 pot withdrawing 4% = £16,000 per year
£400,000 pot withdrawing 6% = £24,000 per year — but higher risk of running out early
The key is to balance your income needs with the long-term health of your pot.
Step 2: Protect Against Sequencing Risk
Sequencing risk is the danger that poor investment returns early in retirement have a disproportionate effect on how long your pot lasts.
Example:
Two investors withdraw the same amount each year.
One experiences poor returns in the first 5 years, the other in the last 5.
The first investor is much more likely to run out of money sooner.
How to Reduce Sequencing Risk
Keep 1–3 years of income in cash or low-risk assets.
Reduce withdrawals during market downturns.
Use a blended investment strategy (e.g. growth + defensive assets).
Consider a fixed-term annuity or other guaranteed income source for core expenses.
This creates a “buffer” so you’re not forced to sell investments at a bad time.
Step 3: Keep Costs Low
Even small differences in charges can have a big impact over time.
0.5% in annual charges on £400,000 over 20 years = roughly £44,000 less in your pot.
1.5% in charges = significantly more erosion.
What to Look At
Platform fees
Fund management charges
Adviser charges
Trading costs (if applicable)
Low, transparent charges can help your pot last many years longer.
Step 4: Balance Growth and Safety in Investments
To make your pot last, your investments need to grow enough to outpace inflation, but not be so risky that a market crash wipes out your income source.
Common Approaches
Blended portfolios: a mix of equities for growth and bonds/cash for stability.
Bucket strategies: splitting your pot into:
Short-term bucket (cash/low risk)
Medium-term bucket (bonds)
Long-term bucket (equities)
Smoothing strategies: investing in funds designed to reduce volatility.
The goal is steady, sustainable growth with protection against shocks.
Step 5: Withdraw Strategically
How you take income matters just as much as how much you take.
Tips for Smarter Withdrawals
Use tax-free cash strategically to minimise taxable income.
Withdraw less in bad market years if you can.
Consider phased drawdown rather than taking the full 25% lump sum at once.
Align withdrawals with tax bands to avoid paying more than necessary.
For example, keeping income below the higher rate threshold can significantly reduce tax drag on your pot.
Step 6: Factor In Inflation
Inflation erodes purchasing power over time. A £20,000 annual income today may not stretch as far in 15 years.
Inflation-Resilient Strategies
Keep part of your portfolio invested for long-term growth.
Consider escalating withdrawals gradually to keep pace with costs.
Use guaranteed income products (like annuities) for core expenses and drawdown for flexible spending.
Step 7: Plan for Longevity
People often underestimate how long they’ll live. According to the ONS:
A 65-year-old man has a 1 in 4 chance of living to 92.
A 65-year-old woman has a 1 in 4 chance of living to 94.
Planning only to 85 could leave you with a 10-year income gap.
Building in longevity protection — either through lower withdrawals, a blended strategy, or a later-life annuity — can help.
Step 8: Consider Blending Drawdown with Guaranteed Income
Many retirees use drawdown for flexibility and an annuity or other guaranteed product for security.
Benefits of blending:
Ensures core expenses are covered no matter what happens in the markets
Reduces the pressure on your drawdown pot
Extends the life expectancy of your pot significantly
For example, using 30–40% of your pension to buy a lifetime or fixed-term annuity can make the remaining drawdown much more sustainable.
Step 9: Don’t Forget the Tax Angle
25% of your pension is usually tax-free.
The rest is taxed as income.
Timing withdrawals to stay in lower tax bands can make your pot last longer.
ISAs and other wrappers can be used alongside pensions to reduce tax drag.
Drawing down gradually may also reduce your eventual IHT exposure (especially after April 2027 when unused pots fall into the estate).
Tax efficiency is a sustainability tool — not just a nice-to-have.
Step 10: Regular Reviews and Adjustments
A successful drawdown plan isn’t “set and forget.”
Review withdrawals annually (or more often in volatile markets).
Adjust withdrawal rates in response to market conditions.
Rebalance investments periodically.
Factor in lifestyle changes, health, and spending patterns.
Even small tweaks over time can significantly extend how long your pot lasts.
Case Studies
Case Study 1 — Safe Withdrawal and Buffering
Martin, 65, has a £500,000 pension pot. He sets a withdrawal rate of 3.5% and keeps two years of income (£35,000) in cash.
He invests the rest in a balanced portfolio.
During a market downturn, he uses the cash buffer instead of selling investments.
His pot lasts well into his late 90s, even with inflation.
Case Study 2 — Reducing Tax Drag
Fiona, 62, structures her withdrawals to stay under the higher rate threshold.
She uses ISA income to top up spending.
By minimising tax, her pension lasts longer without reducing lifestyle.
Case Study 3 — Blended Strategy
Rob and Helen, both 67, use £200,000 to buy a joint life annuity for secure income and keep £400,000 in drawdown.
Core expenses are covered
Drawdown withdrawals are lower and more sustainable
Their combined income lasts comfortably for life.
Common Mistakes to Avoid
Withdrawing too much early on
Ignoring inflation and longevity
Failing to review regularly
Paying excessive fees unnecessarily
Ignoring tax planning opportunities
Panicking during market volatility and selling at the wrong time
Our View at Giliker Flynn
Making your pension drawdown pot last is about structure and discipline — not guesswork.
A sustainable withdrawal strategy
Buffering against sequencing risk
Cost control
Sensible investment
Tax and IHT planning
Together, these can extend the life of your pot by many years and give you greater peace of mind.
Practical Next Steps
Calculate your sustainable withdrawal rate based on your goals.
Build a cash buffer to avoid forced sales in downturns.
Review charges and investment strategy regularly.
Blend guaranteed income and drawdown where appropriate.
Use tax planning to stretch your income further.
Review your plan annually or after major life or market events.
Work with a regulated adviser to model different scenarios.
Conclusion
Pension drawdown gives you control and flexibility — but it also requires careful planning to ensure your money lasts as long as you do.
By combining sensible withdrawals, smart investment, tax planning, and regular reviews, you can protect your lifestyle throughout retirement and leave a meaningful legacy if that’s your goal.
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 design sustainable, tax-efficient retirement income strategies that last.