The pensions worth finding before you retire
Most people have more arrangements than they remember, and the forgotten ones are not always the small ones. What to look for, and the guarantees that get thrown away by accident.
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Why the order of returns matters more than the average
Two retirements with identical average returns can end very differently. The difference is which years were the bad ones — and it is the single most underrated risk in drawdown.
The same average, a different outcome
While you are saving, a falling market is an opportunity: the same contribution buys more. Once you are drawing an income, it is the opposite. Selling units to fund withdrawals in a falling market means selling more of them, and those units are not there to recover when the market does.
Run the same set of annual returns in a different order, with withdrawals happening throughout, and the pot can last decades longer or run out years earlier. The average return is identical. The order is not.
What this means in practice
It means the first few years of drawdown carry disproportionate weight, and that a withdrawal rate which looks sustainable on average may not be sustainable if the early years are poor.
It also means flexibility has real value. A plan that can reduce withdrawals temporarily in a bad year survives sequences that a fixed withdrawal does not.
The usual defences
Holding one to three years of planned withdrawals in cash or short-dated assets, so a bad year does not force selling. Reviewing the withdrawal rate annually against what actually happened. Buying some guaranteed income to cover essential spending, so market falls affect discretionary spending rather than the heating bill.
None of these are clever. They are simply the things that work.
The question worth asking
If you are already in drawdown, the useful question is not what your fund is worth. It is what your current withdrawal rate does to the plan if the next three years are poor. That is a question a model answers in an afternoon, and most people have never asked it.
This article is general information, not personal advice. Tax and regulatory rules change, and what is right for one household can be wrong for another. Take advice on your own circumstances before acting.
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