Pension Drawdown Calculator

About Pension Drawdown Calculator

Model how long your pension pot lasts in drawdown. Enter your pot size, desired annual withdrawal, expected growth rate, and inflation rate. See a year-by-year projection of your balance, compare different withdrawal rates, and toggle the 25% tax-free lump sum to see its impact.

How Pension Drawdown Works

In flexi-access drawdown (the most common type since pension freedom reforms in 2015), your pot stays invested while you take income. Each year, the pot gains from investment returns but loses from your withdrawals. The critical question: will it last your lifetime?

Example: £400,000 pot, 4% withdrawal (£16,000/year), 5% growth, 2.5% inflation:

• Year 1: £400,000 + £20,000 growth - £16,000 withdrawal = £404,000
• Year 2: £404,000 + £20,200 - £16,400 (inflation adjusted) = £407,800
• Year 10: Balance ~£430,000 (growing because returns exceed withdrawals)
• Year 20: Balance ~£400,000 (inflation catches up)
• Year 30+: Pot starts declining as real withdrawals outpace growth

At 4% withdrawal with 5% growth and 2.5% inflation, a £400,000 pot lasts about 35-40 years.

Withdrawal Rate Comparison

How long a £400,000 pot lasts at different withdrawal rates (5% growth, 2.5% inflation):

Withdrawal Rate	Annual Income (Year 1)	Pot Lasts
3%	£12,000	50+ years (effectively indefinite)
3.5%	£14,000	~45 years
4%	£16,000	~35 years
4.5%	£18,000	~28 years
5%	£20,000	~24 years
6%	£24,000	~18 years
7%	£28,000	~15 years

The 4% rule gives a reasonable balance for most retirees expecting a 25-30+ year retirement. Those retiring early (before 60) may want 3-3.5% for extra safety.

The 25% Tax-Free Lump Sum

You can take up to 25% of your pension tax-free (maximum £268,275). The rest is taxed as income when withdrawn. Taking the lump sum upfront:

Example: £400,000 pot, take 25% (£100,000) as cash:

• Remaining pot: £300,000
• 4% withdrawal from £300,000 = £12,000/year (vs £16,000 without taking the lump sum)
• But you have £100,000 in cash for immediate needs or investment outside the pension

The decision depends on what you do with the lump sum. Paying off a mortgage (saving interest) or investing in an ISA (tax-free growth) can make sense. Leaving it in the pension keeps it growing tax-deferred.

Tax on Drawdown Income

Withdrawals from drawdown are taxed as income at your marginal rate:

Other Income	Tax on Drawdown	Effective Rate
None (drawdown only)	First £12,570 tax-free (personal allowance), then 20%	Low
State pension (~£11,500)	Drawdown stacked on top, mostly 20%	Medium
State pension + other income	May push into 40% bracket	Higher

Strategy: take enough drawdown each year to use up your personal allowance and basic rate band, but not so much that you push into the higher rate. This is especially important in the years before state pension starts.

Drawdown vs Annuity

	Drawdown	Annuity
Income	Variable (you choose)	Guaranteed for life
Investment risk	On you (pot can run out)	On the insurer
Flexibility	Full control over amounts and timing	Fixed once purchased
On death	Remaining pot goes to beneficiaries	Usually nothing (unless joint or guaranteed period)
Inflation	Can adjust withdrawals	Fixed unless index-linked (much lower starting income)
Best for	Larger pots, flexibility, leaving inheritance	Guaranteed income floor, peace of mind

Many retirees use a combination: an annuity covering essential expenses (rent, bills, food) and drawdown for discretionary spending. This provides both security and flexibility.

Sequence of Returns Risk

The biggest risk in drawdown is poor market returns in the first few years of retirement. A 20% drop in year 1, combined with withdrawals, can permanently reduce the pot's lifespan even if markets recover later. This is called "sequence of returns risk" and is why many advisors recommend keeping 1-3 years of income in cash or bonds within the drawdown pot.

To plan how much to save before retirement, use the retirement calculator. For tax-free growth alongside your pension, the ISA calculator models Cash and Stocks and Shares ISA projections.

This tool is for educational purposes only. Pension decisions are complex and irreversible. Consult a financial advisor. All calculations run in your browser. No data is sent anywhere.