Three things to do before going into drawdown

A third of people using drawdown to fund their retirement have no investment experience. So, what do you need to do before you start taking money out of your pension?

Almost half a million people have put their pension into income drawdown since the pension freedoms were introduced back in 2015. But, a third of these people have never invested in the stock market before, according to new data from Zurich UK.

Despite being first-time investors 41% of people have chosen to go into income drawdown – where they withdraw sums from their pension pot to provide an income – without getting professional financial advice.

“As double the number of people choose drawdown over annuities, Britons clearly favour the freedom and flexibility, but the issue is that many appear to be underestimating its complexity,” says Alistair Wilson, a pensions expert at Zurich.

“In the build-up to retirement, many savers rely on pension firms to make investment decisions on their behalf, meaning many have no hands-on investment experience when they take control of their pot.

“For retirees not getting advice or guidance, there is a danger they could end up picking the wrong investments or taking money out of their pot too quickly. This is putting a worrying number of people at risk of running out of money in retirement.”

If you are considering income drawdown when you retire, here are three things you need to do before you begin.

1. Understand the basics

If you’ve never invested before read our guide to investing your pension so you have a grasp of the basics.

Also, make sure you understand what income drawdown means and what it will do to your pension pot.

2. Do your sums

Take the time to look at the size of your pension pot and work out how much income you can afford to take from it without running the risk of running out of money in later life when you will need it most.

Pensioners risk running out of cash by following out-of-date drawdown calculation

This can be complicated so you should also consider…

3. Get expert advice

In most cases your pension pot is the money you are relying on to last you the rest of your life. You cannot afford to get your sums wrong or make investment mistakes with it. Expert financial advice could prove invaluable so speak to an independent financial advisor.

You are entitled to take £500 on up to three occasions from your pension pot to pay for financial advice. Use this money to make sure you are making the best possible decisions with your nest egg.