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Step 4: The best ways to make pension withdrawals

Putting your retirement savings into a portfolio of income-producing investments is not the end of the story. You’ll also need to go about taking income from your portfolio in the right way.

In addition, you’ll need a rule that stops you taking too much income, which could lead to your money running out too soon. In this step, we introduce a simple rule to keep your income sustainable.

Withdrawing income and monitoring your portfolio

You now have all your pension savings invested in a portfolio of funds that will, we hope, be appropriate to your needs. Even with no further action on your part, they will start to produce an income. You also have your cash buffer.

However, there are some subtleties to deal with.

First, there are normally costs involved in withdrawing money from a SIPP, and these costs can be minimised with careful planning.

Second, some (those who chose the high-income portfolio and possibly, in some circumstances, those who selected the compromise portfolio) will spend some of their capital as well as withdraw the income that their investments produce automatically. This deliberate spending of capital gives rise to a tricky balancing act between taking too much money and too little. Get it wrong and you could put your entire retirement income strategy in jeopardy.

We’ll now cover these two issues in turn.

◆ How to withdraw income from your pension as cheaply as possible

The biggest danger to your pension savings – withdrawing too much money at the wrong time – and how to neutralise it

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