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3.6 Retirement Income Strategies
Practical ways to combine pensions, ISAs, annuities, and other savings to build a sustainable retirement income plan. Covers real-world strategy models and tax coordination.
3.6 Retirement Income Strategies
Once you’ve built up your pension pots and savings, how do you actually turn them into an income? This chapter brings it all together, showing how to combine pensions, ISAs, and other resources to meet your retirement goals — safely and tax-efficiently.
What Makes a Good Retirement Income Strategy?
A successful strategy balances four key goals:
- Sustainability – Will your money last for the rest of your life?
- Flexibility – Can your income adapt to changes and emergencies?
- Tax-efficiency – Are you making the most of allowances and bands?
- Peace of mind – Are essential costs covered, even if markets fall?
Note: The current IHT exemption for pension pots is expected to end in April 2027. This may reduce the inheritance benefits of leaving pensions untouched. Final rules are still pending.
Building Blocks of Retirement Income
Popular Strategy Models
1. “Essential vs Flexible”
Cover essentials with guaranteed income (e.g. State Pension, DB scheme, annuity). Use drawdown or ISAs for extras and emergencies.
2. “ISA First, Pension Later”
Use ISAs before pensions to minimise income tax and preserve pensions for later — useful before State Pension kicks in.
3. “Pension First, ISA Later”
Use pension income early, preserve ISAs..
4. “Drip-Feed Drawdown”
Take small, regular drawdown income to stay below personal allowance or 20% tax band.
5. “Bridge the Gap”
Use pensions or ISAs to fill income gap until State Pension age. Reduces need for early annuitisation or high drawdowns.
Coordinating with Tax Bands
Summary Table: Choosing the Right Strategy
Next Chapter Preview:
We’ll cover pension planning for couples — how to coordinate between partners, split income tax-efficiently, and handle death benefits wisely.
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