Question 1

How long will my pension last in drawdown?

Accepted Answer

It depends on the size of your pot, the income you draw, and the net growth rate after fees. A common rule of thumb is the 4% rule — withdraw 4% of your pot in year one, increase with inflation thereafter, and you have a high chance of not running out over 30 years. A £250,000 pot drawing £10,000/year (4%) at 4% net growth typically lasts indefinitely; the same pot drawing £20,000/year (8%) typically runs out in around 17 years.

Question 2

What is the 4% rule for pension drawdown?

Accepted Answer

The 4% rule is a guideline that says you can safely withdraw 4% of your pension pot in the first year of retirement, then increase that amount with inflation each year, and have a high probability of not running out of money over a 30-year retirement. It's based on US research from the 1990s and assumes a balanced portfolio of stocks and bonds. It's a starting point, not a guarantee — actual sustainability depends on market conditions and individual circumstances.

Question 3

How much tax-free cash can I take from my pension?

Accepted Answer

Most UK pensions allow you to take up to 25% of your pot as a tax-free lump sum from age 55 (rising to 57 in 2028). The remaining 75% is taxable as income when you draw it. Some older pensions have protected tax-free cash entitlements above 25% — check your scheme rules before transferring, as you can lose this entitlement.

Question 4

What is sequence-of-returns risk in pension drawdown?

Accepted Answer

Sequence-of-returns risk is the danger that poor investment returns early in retirement will permanently reduce how long your pot lasts, even if average returns over your full retirement are reasonable. Drawing income while the market is down forces you to sell at low prices, depleting the pot faster. This is why many advisers recommend a cash buffer of 1-3 years of income to avoid drawing from investments in down markets.

How long will your pension last?