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MoneyWeek article - When is the best time to access your pension and how much should you take?

Journalist: Marc Shoffman, Freelance

ended 13. September 2023

Hello, I am writing an article for MoneyWeek this morning exploring when to take money from your pension.

I am keen to hear from financial planners/experts on the best time to access your retirement pot, how do you decide e.g. age, lifestyle, economic climate?

Does the 4% rule still apply or should it be revised?

Kind regards

Marc

4 responses from the Newspage community

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Editor
Samuel Mather-HolgateVerified
Independent Financial Adviser at Mather and Murray Financial
It’s important that your precise income and capital needs are modelled using a cashflow program and stress tests are added to ensure you don’t run out of money during your retirement. We have seen how much inflation can erode income, so sensible assumptions about this and growth rates should be used. More clients are using a combination of drawdown and annuities not rates have climbed up to normal levels. If you don’t need tax free cash you can choose to have part of your income tax free. This will reduce your tax bill and mean more money in your pocket each and every month.
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Ross LaceyVerified
Director & Independent Financial Adviser at Fairview Financial Management
There are so many factors to consider that this will be different for each person. It's important to look at the bigger picture and consider things like savings and investments held outside of pensions, other income received, health, how the money is invested and ultimately, what the desired outcomes are. There is sometimes a misconception that taking 25% tax free as soon as it becomes available is the default, which for some people makes little sense. There are also opportunities to make strategic taxable income withdrawals for non-taxpayers even if they don't necessarily need the income at that point. All of this can be considered as part of comprehensive financial planning which will help show the optimal way to do things now and in the future.
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Joshua GerstlerVerified
Chartered Financial Planner at The Orchard Practice
The best time to access your pension should be based upon your well thought out financial plan. Historically people said you should not access more than 4% per year so that the money does not run out and this is still a good guide. However, in reality our spending is not linear. We might want to spend more in the early years of retirement for example to travel round the world. Our spending may slow down as we get older and are less able to get out and about. Albeit this could be offset by an increase in care fees. If you have a financial plan then you will have a good idea of how much you can access without ever running out of money.
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David RobinsonVerified
Co-Founder at Wildcat Law
Many people are still caught up with the concept that a "pension" is just to provide income for retirement. This was, and is correct, for the old defined benefit (DB) pension schemes, but most of now have defined contribution (DC) schemes which are more like ISA's and collective investments than they are DB pensions.
A tale of taxes! One answer, therefore, is as late as possible. For those with estates that are likely to pay inheritance tax, as you can pass DC pension pots to your beneficiaries without IHT applying, pensions should be one of the last sources of income you should draw on. Instead look to taking money from ISA's and other forms of savings that aren't as IHT friendly.
Clever use of different savings vehicles can also significantly decrease the amount of income tax you pay every year. For example you could use annual capital gains tax allowances via collective investments.