How pension drawdown works

A pension pot is a stock of money. Retirement income is a flow. Drawdown is one way to turn the first into the second while some of your savings remain invested.

The three amounts to keep separate

Your starting pot is the money available in your pension. Your gross withdrawal is the amount leaving that pot. Your net income is what remains after income tax, together with any other income you include. These amounts answer different questions.

For a simple arithmetic example, a £300,000 pot with no growth, no fees and £1,000 withdrawn every month pays 300 withdrawals: 25 years. This says nothing about tax, inflation or market performance. It is a useful baseline against which to understand a more detailed model.

Upfront cash changes the starting point

Choosing to remove cash before drawdown leaves less invested. In our model the upfront option takes the lower of a quarter of the entered pot and the unused standard allowance you supply. Future withdrawals from the remainder are treated as taxable.

For example, taking £75,000 from a £300,000 pot leaves £225,000 invested. With the same zero-return £1,000 monthly withdrawals, the invested portion lasts 225 months. The £75,000 cash is outside that projection, not lost.

State Pension is another income stream

Enter your official State Pension forecast separately. In this calculator it adds to income from your chosen start age; it does not automatically reduce the amount you have told the calculator to take from your pot.

Why a steady return can mislead

A model with a steady annual return is easier to understand than a random sequence. Real returns do not arrive in a straight line. Losses early in retirement can make withdrawals harder to sustain even when the eventual average return looks reasonable.

Try a lower return and a longer horizon. Those scenarios are ways to explore sensitivity, not a probability of success. The calculator does not select an investment, recommend a pension transfer or assess whether drawdown suits you.

Explore your drawdown