BLOG: Five income drawdown tips

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Towry's Andy James offers five top tips on how to maximise the benefits of income drawdown.

1. Make sure that you are doing income drawdown for the right reasons. Are you looking for flexibility of income, continued investment returns or better death benefit options? If none of these are important to you then question why you are undertaking drawdown in the first place?

2. Ensure you are comfortable with the investment risks involved in income drawdown. The critical yield on a drawdown illustration will give you an indication of the investment returns you need to maintain the income value of your investments. The higher the figure, the more difficult it will be to achieve, and the more risk you will need to take. If the risk you need to take does not match the risk you are willing to take then drawdown is probably not for you.

3. Understand how much you need to be taking through drawdown each year and match this with your budget. Don’t just take the maximum because you can, as it will deplete your fund quicker and may lead to you having to reduce income later when you don’t wish to.

4. Use the flexibility that income drawdown offers. Drawdown can greatly assist with tax planning as you can raise or lower the amounts you withdraw depending on other income sources. Use this to give yourself the most tax efficient income you can and don’t forget to use your capital gains allowances in conjunction with this income as part of your retirement planning.

5. Never discount the purchase of an annuity. Even if drawdown is right for you, would it make sense to take some of your income via an annuity and therefore give yourself a level of guaranteed income? For most individuals, the purchase of an annuity at some point during their retirement will probably make sense. It will probably be better to do this in stages rather than in one go. This could give you a better balance of annuity rates over the years and also may give you the opportunity to purchase different types of annuity, including enhanced annuities should your health deteriorate over time.

Andy James is advice policy manager at Towry

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