Drawdown or annuity? How to turn a pot into income
6 min read
The decision that decides whether a pot lasts, framed as a trade between flexibility and certainty — plus the middle path most people end up on.
The real question is which risk you prefer
Drawdown keeps your money invested and hands you the market risk. An annuity hands the risk to an insurer in exchange for a fixed income. Neither is safe in every sense: drawdown can run dry, and a fixed annuity can be eaten by inflation.
Cover the floor first
A practical framing is to guarantee the income you cannot do without — housing, food, energy, insurance — and keep the flexible spending in an invested pot. If the essentials are covered for life, a bad market becomes an inconvenience rather than a crisis.
The first five years matter more than the rest
Withdrawing from a falling portfolio locks in losses you never recover from. That is sequence risk, and it is the reason a cash buffer of one to two years' spending is worth its low return.
Build a withdrawal order, not just a rate
Which pot you take from, in which year, changes your lifetime tax bill. Using allowances deliberately across years is quiet, unglamorous and frequently worth more than any investment decision you will make in retirement.
Run the numbers
Questions people ask
Can I do both?
Yes, and many people do. Annuitising part of the pot for essentials while keeping the rest invested is a common and sensible middle path.
Is 4% a year safe?
It is a starting benchmark from US historical data over 30 years, not a guarantee. Early retirement, high charges or a poor first decade all argue for a lower rate.
When should I decide?
Sketch the approach in your fifties. Deciding under time pressure, in the month you stop working, is how people end up with an option that does not fit.
Educational content and estimates, not regulated financial advice. Rates and limits change — confirm current figures with the official government source for your country.
Where to next?
Check your retirement readinessPut your own figures in and see the gap.
- How much do you actually need to retire?
- Pension basics, explained without the jargon
- Pension tax relief: what it's really worth