This is a subject close to my heart as I have been taking an income from my drawdown plan for a few years now and I am constantly trying to get even better at managing it.
Prior to that, drawdown was one of my specialities as a Financial Adviser with many satisfied clients.
A good article on this subject from Hargreaves Lansdown can be found here. Whilst I agree with much of the article my strategy is much stronger in two key areas.
Firstly my underlying investments comprise almost exclusively funds with the objective of paying an above average level of dividends. I feel far more comfortable with the bulk of my withdrawals being covered by dividend income. Yes, my withdrawals are higher than can be sustained by dividends alone so I do need to bank profits from time to time, but I can do this when I choose and not when markets are down.
Secondly I always want to have enough cash (although it’s earning next to nothing) which, together with dividends, will cover withdrawals for at least two years–ideally three years. The biggest single reason drawdown plans don’t work is having to sell investments at the wrong time to cover withdrawals. That is a slippery slope from which there is no way back.
Are you entirely satisfied that your Strategy is right?
The questions to ask yourself or your adviser are:-
- How much of my income withdrawals are covered by dividends?
- For how long can I take withdrawals without selling investments?
If you really are paying attention you should either know the answers or be able to find them easily in your annual or half-yearly statement.
Any doubts? This is far too important to take any chances. Why not get a second opinion by enrolling for our Drawdown Pension Review Service?
Hopefully everything will be in order and you can sleep soundly at night. If not you will be in a position to either sort things out with your current adviser or move on.
The online cost of this service is just £370. Add a personal consultation at our office for just an additional £100. The best starting point is to click the box higher up on the right to arrange a preliminary telephone conversation.
A recent survey from Standard Life reported that 71% of people either didn’t read their pension statement or just gave it a cursory glance. Scary enough when you are building up a pension plan but when you are drawing from your plan you really, really, do need to be paying much more attention. Give yourself a score out of ten on how much you really understand what is going on. Any less than seven and your future is at risk if you don’t get help and quickly.
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