Use Tideway Dual Account Drawdown to avoid being a forced seller

The most effective strategy for handling the sequencing risk during pension drawdown is to implement a process that minimises the effect from having to sell volatile investments to finance your withdrawals when the market is in a downturn.

This is easy to say but more complex to arrange in practice. However, if done well, the results can be impressive.

The Tideway Dual Account Drawdown has been designed for this very purpose.

The Dual Account Drawdown plan is made up of two accounts:

Account Number 1

This account has a balance of approximately five years’ income needs, or 25% of the overall plan value. It is invested in short-term less volatile investments seeking a smoothed lower return – in this case, 5% per year return.

Account Number 2

The remaining balance of the plan is invested in a portfolio aiming to achieve both income and growth over the long term. It will include more volatile assets. 

By withdrawing income from profits accumulated in the long-term Number 2 account, but utilising funds from the short-term Number 1 account during market downturns, a significant enhancement in returns can be achieved.

This chart illustrates the retirement fund of an individual who begins with an initial investment of £500,000 with the same hypothetical 8% return,  withdrawing £25,000 per year in income, increasing by 3% annually to match inflation.

As shown in graph, the the Dual Account Drawdown plan shows an overall balance improvement of £487,000 over a period of 25 years.

The two-account process does not completely insulate drawdown investors from the stock market volatility. However, it can significantly increase the plan return and improve its outcome.

Account Number 2