How to make your pension pot last longer

How long do you expect to spend in retirement?

You can choose to access your pension pot at any age from 55 onwards. The average 55-year-old man in the UK could expect to live to 84, while the average 55-year-old woman might live to 87. Of course, your own life expectancy will depend on your health and lifestyle. But we are all living longer. If your parents lived into their 90’s you might stand a very good chance of doing the same.

You cannot run the risk of running out of money in retirement. It means that your pension pot may need to provide you with an income for 40 years.

At Continuum we are looking at how it could do just that.

Take an annuity

Arranging a pension which will last for the rest of your life is actually very simple. When your chosen retirement date comes, you use your pension pot to buy an annuity.

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If you have questions about retirement planning, contact us for some free initial answers.

This is the traditional approach to pensions. An annuity is an insurance product that gives you a guaranteed income for the rest of your life, no matter how long you live. The level of income you’ll get depends on the annuity rate at the time you buy it. For example, if annuity rates are 5%, you’ll receive a sum equal to 5% of your pension pot each year.

In March 2020 the best annuity rates were around 5.2% for someone retiring aged 65. So, a pension pot of £100,000 would buy you an annuity pension income of £5,200 a year.

That’s not a fortune, but it could form a part of your retirement income, on top of the state pension and any other arrangements you may have made.

An annuity will usually not pay out to your spouse after your death unless you buy a joint annuity. However, this additional protection will reduce the level of income paid out.

Discover Drawdown

Pension freedoms came in April 2015 and a complete shake-up of the UK’s pensions system, giving more choice over your pension savings – and one of the choices is drawdown.

With drawdown, your pension pot is invested, and you can draw out as much as you wish – but of course, the more money you take out, the faster the pot will shrink, unless what you draw is balanced by the growth your fund enjoys.

There are no guarantees with drawdown – once the money is gone, you will have no pension income. This means you need to work out an income level that will use up your savings at the right pace.

How much you can withdraw – and how long your pension fund will last – will depend on the performance of the stock market. Strong growth will help you – but the markets will have downs as well as ups.

You could split your pension pot between an annuity and a drawdown scheme, to try and get the advantages of both.

What should you do?

Of course, the larger your pension pot the easier it will be to make it last, however you decide to use it.

At Continuum we can provide the expertise you need to build a pension pot that is more than adequate for your needs – and show you the best ways to use it to give yourself the lifestyle you want, for as long as you need.

At Continuum we can help you look at your pension planning as part of a full pension review that could leave you a great deal better off – and help you enjoy a long and prosperous retirement.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.

Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.


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