Yahoo Finance Annuity vs drawdown calculator: How large will your pension pot be after retirement?
Figuring out the size of pension pot you'll need for a comfortable retirement, as well as what accounts for healthy pension growth, is a tricky business.
In just a few easy steps, our pension calculator tool can give you an estimate of the income you can expect in retirement, and how long it could last before running out.
Many people don't know how much money they should be contributing to their pension pot on a monthly basis, and at what age they can hope to retire.
Our tool will tell you:
How much income you will need in retirement
Your final pension pot based on contributions
How much income you could receive from an annuity including your state pension
How old you will be when your pot runs out if you choose income drawdown
Our tool also takes into account interest rates, inflation, pension management charges, and how your state pension will influence your annuity/ drawdown
Use this to help you plan for a safe and happy retirement.
By adjusting options such as your pension contributions and your tax free withdrawal amount, you can see how this could alter your final retirement savings. Use these features to maximise your retirement savings.
Calculations provided by advice and wealth management firm Quilter
What’s a safe level of income to take when drawing down?
Until recently, 4pc was considered by many to be a "safe" or sustainable level of income to take from a pension pot without taking excessive risk of the capital draining away.
This assumes average returns from a mixed portfolio of investments and a retirement spanning 30 years.
But the 4pc figure was based on research from America – where the pension system operates differently – and more recent analysis suggests a safer figure could be even lower than this.
What is an annuity?
Annuities are insurance contracts that pay a guaranteed income for life to millions of pensioners.
There are various types, covering one or two lives, rising with inflation and with guaranteed payout periods.
If you are in ill health, and your life is expected to be shorter than average as a result, you will likely qualify for an "enhanced" or "impaired life" annuity.
Conditions such as high blood pressure could boost your rate by up to 10pc. Serious diseases such as cancer will lift the income far higher, up to 40pc or more.
What is drawdown?
Before the pension freedoms took effect in April 2015 the vast majority of the 300,000 or so people who retire each year bought an annuity. This may have meant a lack of choice and ever-worsening rates, but it was at least simple. No matter what, you would be paid a guaranteed income until you died.
Only relatively few wealthy people kept their pension invested into retirement, and those who did usually had a financial adviser. But this strategy – known as “drawdown” – has exploded in popularity as a new generation of retirees shuns annuities in favour of added flexibility and protection from tax.
“DIY” investors who manage their pension without the help of an adviser must keep a close watch on investment performance, fund manager changes and broader markets. Taking too much income at the wrong time can rapidly deplete pots and leave savers short in retirement.
Drawdown accounts are offered by all the major stockbrokers and pension companies. Be warned – fees, flexibility and investment options differ between firms.
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