Retirees increasingly favour pension drawdown for the flexibility it provides, but this approach requires careful management to ensure savings last throughout retirement. This article examines the risk of withdrawing money from investment portfolios during periods of market volatility, often referred to as sequencing risk. Market downturns combined with ongoing withdrawals can significantly reduce a portfolio’s long-term value, potentially increasing the risk of running out of money later in life.
The article explores a range of strategies designed to make retirement income more sustainable, including maintaining separate pools of assets for short and long-term needs, using lower-risk investments to fund regular withdrawals, and preserving growth assets during market downturns. It highlights Tideway Wealth’s dual account drawdown approach, which separates income-producing assets from growth investments, helping investors avoid selling long-term assets at unfavourable times and improving the sustainability of retirement income.
“In the example we created using a hypothetical stock market return with behaviour in keeping with historic stock market returns, the dual account process created a 66 per cent up lift in returns as compared to the single account.”
Tideway Wealth
The chart shows a dual account solution compared to a single account drawdown product.
In this case 25 per cent of the pension drawdown pot is placed into a low risk account at offset with dividend income and profits wherever possible from the equity fund investment in the second account.
In this solution capital withdrawals from the second account can be timed and will not happen automatically every month.
“That’s the difference between fully exhausting your account over 25 years and having your original capital still in the account to pass on to the next generation.”
“We think one day all drawdown products will be built this way.” Baxter added.
By Alina Khan
You can read the full article here.
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