How much can I safely withdraw from pension drawdown each year using the 4% rule?

Full answer

The 4% rule is a planning rule of thumb suggesting you can withdraw 4% of your starting pot in year one, then increase that cash amount each year with inflation, with a reasonable chance the money lasts about 30 years. It is not a UK rule or guarantee, and many advisers now prefer 3%-3.5% given lower expected returns and longer lifespans. Worked example: you move £200,000 into flexi-access drawdown after taking your 25% tax-free cash. At 4% you draw £8,000 in the first year, rising with inflation thereafter. That £8,000 is taxable income. Combined with the full new State Pension of £12,548 a year, your total income is £20,548; after the £12,570 Personal Allowance, £7,978 is taxed at 20% = about £1,596, leaving roughly £18,952 net. If markets fall early in retirement, drawing a fixed amount can deplete the pot faster (sequence-of-returns risk), so review withdrawals annually and consider holding one to two years of spending in cash. Drawdown keeps your pot invested and passable to heirs, unlike most annuities, but you carry the investment risk. Use the pension calculator to model different withdrawal rates and growth assumptions. For free guidance see Pension Wise and gov.uk at https://www.gov.uk/pension-types.

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More answers

• How does pension flexi-access drawdown work in the UK?
• How does pension drawdown tax work?