I am age 58 and have worked all my adult life. I am ready to step back from the rat race and take early retirement. I will have a full state pension when I’m 67 but plan to draw from my private pension to support myself for the next nine years. My pension is worth £650,000 – will that be enough to give me a living income?

Lowestoft Journal: Phil Beck, Independent Financial Adviser with Smith & Pinching, Chartered Financial PlannersPhil Beck, Independent Financial Adviser with Smith & Pinching, Chartered Financial Planners (Image: Smith & Pinching)

Phil Beck of Smith & Pinching responds:

Your question raises far too many other questions to give you an immediate answer, I’m afraid. This is a critical time in your life so please get independent advice to ensure that you have a safe, solid retirement income plan in place before you stop working.

Starting withdrawals from your pension fund early will put more demands on it, so it may not then generate the level of income you require throughout your retirement. However, the value of your pension fund is significant, so it is likely that you can manage your withdrawals to provide for your needs, as long as you plan carefully. The critical question is what you consider a living income. This will depend on your expected lifestyle in retirement as well as your basic outgoings and commitments.

You will be entitled to draw up to 25pc of your fund as a tax-free lump sum. You don’t have to take this and you may be able to take it in stages, depending on how you take your pension income.

You have two principal options in terms of your pension income. You can use your fund to buy an income for life – an annuity. Annuities generally deliver a fixed level of income (which might be index-linked) throughout your retirement. You would use some or all of your pension savings to buy the annuity contract. Annuities can be set up to provide an income for a surviving partner, but there would be no provision to leave benefits to other heirs.

The alternative is drawdown, where your money remains invested for growth and you take withdrawals direct from the fund as required. Drawdown allows you to take different amounts of income at different stages of your life. Any unspent pension can then be left to named beneficiaries, ensuring funds are passed on as per your wishes.

I really think you would benefit from discussing your needs with an independent financial adviser. We use lifetime cashflow planning as part of the analysis, to help you see the effect of early withdrawals on your pension savings.

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

For more information, please visit www.smith-pinching.co.uk