Drawdown is becoming a more important part of the retirement investment journey and is quite distinct from the accumulation phase.

Data from the Financial Conduct Authority shows that around 205,000 pension plans entered drawdown in the year to 31 March 2022, an increase of 24% over the previous year. The total value of these plans was some £32 billion with an average value of around £156,000.

A framework for considering different types of expenditure in retirement can be important in clarifying objectives and designing a portfolio, with many assumptions affecting the retirement journey, such as longevity, inflation and investment returns, subject to change.

Such an approach can make retirement investment less daunting by breaking the problem down into more manageable building blocks: a portfolio needs to deliver income to fund not only living and lifestyle expenses but also to provide legacy or contingency reserves.

This paper looks at a case study of a typical retiring couple and analyses how they can build an appropriate portfolio given these needs. We take our analysis a stage further to identify an optimal withdrawal rate from the couple’s retirement portfolio to ensure requirements are met without exhausting their pension pot.