Retired 10 years ago with £100k

2015-2025 – a golden decade?

At a high level it is clear markets have been kind to the first cohort retiring under pensions freedoms.

Key has been the relatively quick recoveries markets have made from setbacks. Both the outbreak of Covid-19 in 2020 and the outbreak of war in Ukraine in 2022 produced significant falls in markets, but these were recovered in short order. That’s very important for anyone decumulating their investments because it reduces the need to sell assets at depressed prices in order to produce income.

Drawdown vs. annuity

For those deciding in 2015 between relying on markets to produce their income via drawdown and buying an annuity – there’s only been one winner.

Back then, £100,000 would have bought a single life annuity (for a 65-year-old, no escalation) that paid £5,304² a year. Very few would now choose that over the alternative produced by markets, where it has been possible to take similar levels of income and more, while also leaving you with a pot that’s bigger now than when you started – and which still belongs to you.

A plan for the next ten years?

Unfortunately, we can’t base our plans for the future on what’s happened in the past. Those weighing up their retirement income options today may not be as lucky as previous retirees have been with market conditions.

One practical way to reduce the risk of market falls hurting your income is to build a cash pot into your plans. Professional advisers often recommend two or even three years’ worth of income to be held in cash. Day-to-day income can be taken from this pile and then replenished after a year if market conditions allow.

If markets have fallen you have the option of taking only income produced naturally through dividends or bond interest, or of leaving investments completely untouched while you take another year’s income from the cash pile. With luck, markets will have overcome any setback by the time you really need to sell assets.

While it makes sense to focus on the risk that you run out of money, an opposite risk also exists – that you don’t make the most of your income because you’ve been too cautious.

Professional financial advice can help. The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 011 3797.

Fidelity’s retirement specialists can provide you with free guidance to help you with your decisions. Our advisers use cash-flow modelling tools to help you plot a sustainable – but optimised – plan for income in retirement.

Source:

¹ Gov.uk, Private pensions statistics, table 9, 31 July 2024.
² The Annuity Project, February 2025 

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns from 28.2.20 to 28.2.25. Excludes initial charge.