Will I have to cut spending to make my pension last?
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I opted to take 'flexi-access drawdown' to provide my retirement income. The ups and downs of the market over the past year have made me increasingly nervous that my pension fund might lose value to the extent that it may run out if I live a long life. I wonder if I should try to spend less each year – but I want to enjoy the lifestyle I have at the moment. Should I cut my spending?
Richard Barker of Smith & Pinching responds:
I’ve been asked this question a number of times when markets have been turbulent so I do understand your concerns. The key to resolving this is monitoring and planning throughout your retirement.
As you will know, flexi-access drawdown involves drawing an income directly from your pension fund, rather than buying an annuity (a guaranteed income for life). Your fund therefore remains invested for potential continued growth throughout your retirement. The drawdown route allows you to draw different levels of income at different stages of your retirement, which can be perfect if you want a more active retirement in the early years but anticipate spending less later on, for example.
The investment of your pension fund, the associated charges and the risks you are prepared to take are all important factors in delivering the income that you may need. It is critical that the performance of your fund is monitored and the investment assets adjusted as needed to give you the returns you need: the better the performance, the longer your fund will last. It may be that you would benefit from some kind of portfolio management, for example, whereby your portfolio is adjusted on a regular basis within agreed risk parameters to maintain its performance as far as is possible.
My answer to your question is simple: get independent financial advice from a Chartered Financial Planner to ensure that you understand what your fund may achieve, then review your plans regularly. We use lifetime cashflow planning to demonstrate the balance of the investment growth of your fund against your expenditure. We explore different potential levels of both income and expenditure so that you can see the sustainability of your fund over your retirement years under different circumstances.
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