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- Balancing financial security and flexibility for an earlier retirement
David and Catherine wanted to know if they could retire early without giving up the financial security or flexibility they each valued.
David and Catherine came to TPO because they were beginning to think seriously about retirement. Their main question was whether they could afford to stop working earlier than planned and, if they could, how they should use their pensions to make that possible.
They already had some defined benefit pension income in payment, while David had built up a substantial defined contribution pension. Our financial planning showed they were in a strong financial position and they could afford to retire and enjoy the lifestyle they had worked towards.
The bigger question was how to structure their pensions in a way that worked for both of them.
David and Catherine had quite different views about how their pension savings should be used.
David was comfortable taking investment risk and liked the flexibility offered by pension drawdown. Catherine was more cautious. With around ten years until they reached State Pension age, she wanted the reassurance of knowing their essential household costs would always be covered.
She was particularly concerned about inflation and had been reading about annuities, which appealed to her because of the security and guaranteed income they could provide.
Rather than treating one approach as right and the other as wrong, we needed to find a retirement plan they could both feel comfortable with.
We spent time understanding what David and Catherine expected to spend in retirement and modelled a range of scenarios to show how their pensions could support them.
As we looked more closely at their expenditure, it became clear that Catherine’s main concern was not about having all of their retirement income guaranteed. She wanted certainty around their core spending, such as household bills and everyday living costs.
We therefore recommended using part of David’s defined contribution pension to purchase a fixed term, index linked annuity running until State Pension age. This gave them a guaranteed income towards their standard of living while helping to protect that income against rising prices.
The tax free cash generated alongside the annuity also gave them a separate pot to enjoy during the early years of retirement, including money for holidays.
The remainder of the pension stayed invested in drawdown. This gave David the flexibility he valued, while allowing part of their wealth to remain invested for longer term growth and additional spending when required.
The result was not an annuity plan or a drawdown plan. It was a retirement strategy built around both of them.
Catherine has the security of knowing their essential spending is supported, while David retains the flexibility and investment exposure he was comfortable with. Most importantly, they now know they can retire earlier than expected without either of them having to compromise completely on what made them feel financially secure.
Their experience shows why retirement planning does not have to be one size fits all. Different pension options can work together, allowing a plan to reflect the priorities of both people and adapt as retirement progresses.
Our clients’ names have been changed to protect their identities.
This case study is intended as illustrative purposes only, it does not constitute individual advice and should not be used to inform financial decisions.
They are based upon our understanding (at the time of advice) of current law, HM Revenue and Custom's practice, tax rates and exemptions, which are subject to change.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.
The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.