The Drawdown Calculator Manual

How to use it, what it tells you and the assumptions it makes

Who will it be useful to?

This calculator is designed to help those who are going to use flexible drawdown as a means to generate income in retirement rather than buying an annuity. It looks at the sustainability of income at different investment rates, the impact of taking a one off withdrawal from your fund and shows what the likely residual value of your fund will be depending on how long you live.

What does the calculator show?

Enter in your current pension fund as the starting value, how much pension income you want and select when you want the income to start, click calculate and a graph below ( blue line) will appear plotting the balance in left in your drawdown account over time.

If the balance goes to zero, your projected fund has run dry and your income will stop at this age along the bottom x axis. If the line does not go to zero this showing there will be residual balance in the drawdown account.

You can adjust the real investment return assumption as an annual percentage to show the impact of this on your fund value. You need to click calculate each time you change one or more of the input boxes.

You can then add in a one off withdrawal and click calculate again a second plot (brown line) will show how this one off withdrawal will impact the balance in your account over time. This will show you how much more quickly the fund will run dry, or how much lower the residual balance will be.

How does it work?

The calculator projects forward a balance for the drawdown account adding on the set investment return each year and deducting the planned income withdrawals. If a one off withdrawal is added in this is deducted from the drawdown fund balance at outset.

Important Points to Consider When Using the Calculator

Tax Free Cash and Taxable Withdrawals

The calculator just looks at the gross withdrawals made from the fund, initially you may still have entitlement to your 25% tax free sum, after this withdrawals will be taxed as income before you receive them by your pension administrator.

If you are thinking of making a large taxed withdrawal you may wish to use our Pension Withdrawal Calculator to work out the tax you will pay on this and whether this can be reduced by spreading it over more than one tax year.

Real Investment Returns Net of Fees

The calculator allows you to select a range of investment returns net of both fees and inflation. So whilst these returns might seem low remember you need to think about the returns you will make after the costs of running your drawdown account and after deducting inflation each year. For example if an investment returns 5% gross, all the costs of running your drawdown account are 1.5% and inflation is 2% this will equate to a 1.5% real return net fees as per the calculator.

Furthermore the calculator uses an average return with the assumption this is made year after year. In practice if you are investing actively some years will be good and some years will be bad, the average return must take account of the bad years as well as the good ones.

Remember if you invest actively the value of investments and the income they generate can fall as well as rise.

Get Help and Advice

If you are in any doubt as to what is a reasonable income to plan to receive given the current size of your pension drawdown account, how long this income might be sustainable for given your life expectancy and how a one off withdrawal will impact this, then get the help of a suitably qualified pension adviser.

Important notes and warnings

The investment return rates would not be guaranteed and the cash sums and pension income you will be able to draw, and any residual value you will be able to pass on, from a transferred pension will depend on how much investment return your fund actually makes.

In a final salary scheme, the cash and pension payments are fixed and guaranteed by your scheme and previous employer. Both final salary pension benefits and transfers are relatively complex and you should always take advice about your options as you approach retirement. A transfer out of a final salary scheme is irreversible and can only be done after advice has been given by a qualified adviser.

This calculator is provided by specialist pension advisers Tideway. For a more accurate estimate, to get free initial advice and download free guides, you can visit Tideway's wealth management website or dedicated final salary transfer pages.

© Tideway Investment Partners LLP