Many retirees are entering drawdown without working out how much they can afford to take from their pot, putting themselves at risk of draining their savings too soon, new research shows.
Pension drawdown allows savers to take an income from their pension pot while leaving the rest invested, rather than buying an annuity.
Insurance provider Zurich found that, four years on from the introduction of Pension Freedoms, more than 435,000 people have shifted their pensions into drawdown. However, just a third (34%) of retirees in drawdown calculated how much income they would be able to generate from their pension pot before retiring.
Another third calculated how much money they would need to cover day-to-day living expenses, and a further third considered how long their money would need to last.
A similar lack of planning can be seen in retirees' investment strategy, Zurich noted. Only 16% decided where they would invest their drawdown funds to achieve the desired income and 17% decided which strategy they would use to withdraw income, i.e. selling units of investment funds or shares or living off the dividends and interest and leaving the underlying investments untouched.
Alistair Wilson, head of Retail Platform Strategy at Zurich, said: "Many retirees in drawdown are relying on blind luck to make their savings last throughout retirement. But by taking simple steps to work out how much they can afford to take from their pot, savers can avoid withdrawing too much, too soon."
Zurich recommends using the 'RETIRE' checklist to ensure you have covered the basics before moving into drawdown:
Research -- shop around to find the most suitable drawdown provider for your needs
Expenditure -- calculate your living costs to find out how much you need to live on
Time -- consider how long you might live for, and therefore how long your pot needs to last
Income -- calculate how much income you can afford to safely withdraw from your pot
Risk -- think about what you will invest in -- with more risk comes bigger returns and a greater potential for loss
Engage -- speak to a financial adviser, or get free guidance from Pension Wise.
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