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Make it last

Have a plan in place when accessing your pension.

Important information - please keep in mind that the value of investments can go down as well as up so you may get back less than you invest. Eligibility to invest in a SIPP and tax treatment depends on personal circumstances and all tax rules may change in the future. You cannot normally access money in a pension until age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity's advisers or an authorised financial adviser of your choice.

Time to reap your rewards

You've spent a lifetime saving for your dream retirement. Don't fall at the last hurdle.

Some people like to buy an annuity, which gives a guaranteed source of income. Some people prefer to take money from their retirement savings when they need it (also known as drawdown). And some people do a mix of the two.

In this section, we're going to focus on drawdown and mapping out a flexible income plan - whether that's as lump sums or a regular income, so that your pension pot lasts as long as you do. 

Make your pension last

The theory

Before you know what kind of income your pension can give you, you'll need to think about how long you need it to last. And as we're all living longer, it's not easy to predict how long that could be.

How it works in practice

The chart looks at the life expectancy of people already aged 65. It shows that women live, on average, to age 87, while men live to 85. But there's a one-in-four chance that women will live to 94 - men to 92. And a one-in-ten chance that women will live to 98 - men to 96.

It means a sizeable number of us will enjoy retirements that last 30 years or more.

Base your plans on sensible assumptions of life expectancy and factor in other sources of income that help meet your living costs at different stages. 


Work out how much money you need to enjoy your retirement

The theory

When calculating the income you can take from your pension, think how much you can take each year so that there's enough left in the pot to last your lifetime. In reality, this will depend on your investment returns - which are uncertain -  so it makes sense to stay flexible and be prepared to alter the income you take as time goes on. The key is to avoid taking too much so that you run out of money early.


How it works in practice

If you've got £100,000 invested in your pension pot, you can see that withdrawing higher amounts, increases the risk of your pension running out sooner - even when the amounts aren't greatly different.

See how long your retirement income might last with our pension drawdown calculator.

Understand what sequencing risk is

The theory

While you've been saving for your pension, you've probably not worried too much that your investment returns vary from year to year. After all, time was on your side. But once you're ready to retire, the order in which your returns occur matters more as it could lead to very different outcomes for you and your pension. This is sometimes known as 'sequencing risk'.

If you sell your investments when the price is low, you'll have to sell more of them to get the income you want (leaving less of your pot invested). On the other hand, when the price is high, you'll sell less which leaves more of your money invested - and gives your investments a greater chance of growing in your retirement.

How it works in practice

This example is for illustrative purposes only. Investment values can fall as well as rise and so outcomes can be different depending on market conditions. Charges would also apply and reduce any returns.

Let's say that over 10 years, your portfolio will earn an average annual return of 5%. Some years you'll get higher returns. Some years they'll be lower (perhaps even a loss). If you start to take an income when your investments are performing well, you won't have to sell as many investments to get the income you need. This will give you a 'good start' to drawing an income and you can see this on the graph in blue. Even though your returns fall in later years, you're still left with just around £116,064 in your pension pot.

If, on the other hand, you start to draw down when your investments aren't doing very well, you have to sell more investments to get the income you need. This is the 'bad start' shown by the orange line. By the time ten years have passed, your pot is significantly smaller than if you'd enjoyed the 'good start'.

It is important to note that these two examples use exactly the same illustrative investment returns but in reverse order. The difference is the timing of the good and the bad years.

This is why it's important to evaluate how your investments are doing when you start to take an income from your pension pot. 


Get smart about sequencing risk

Prepare for the worst, hope for the best. That pretty much sums up how best to approach sequencing risk. You can't do anything about market falls. But if they come along when you start to take an income, it can really affect your pension pot. 

Here are some things to think about when taking an income from your pension pot. 

Ensure you have some cash reserves
Live off the income from investments
Buy an annuity
Be flexible

What next?

Explore pension transfers

Find out how bringing pensions together can make it easier to manage your retirement savings.

Retirement planning

We've got plenty of tools to help you plan for your retirement - whatever stage you're at - from guidance and advice to retirement calculators.

Speak to a retirement specialist

Our team of advisers can help you plan for your retirement and choose an income that meets your needs.

Important information - this information is not a personal recommendation for any particular product, service or course of action. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly recommend that you seek advice from one of Fidelity's advisers or an authorised financial adviser of your choice.

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