Tax free drawdown

okydoky

After taking tax free cash, my pension pot is £150K, so could I take £600pm tax free as I have no other taxable income and supplement my income with drawdown from savings? This way I would avoid tax until state pension kicks in when I raech 66.
How dangerous would this strategy be given higher inflation and cost of living, and at these levels would my remaining pension fund deteriorate substantially?

Loughton_Monkey

I would suggest that's 'about right'.

By taking £7,200 a year for the time being, that's just about 4.8%. However, you don't say how old you are. It obviously becomes more 'marginal' the more you are down towards age 55.

Although I wouldn't use the word 'dangerous' the important thing is that you understand the 'danger' [risk] in drawdown itself - as opposed to a 'safe' annuity. The latter course of action is almost certainly going to leave you 'exposed' in a big way to future inflation. In concept, drawdown should give you quite a bit of protection from that. But of course there is significant volatility to contend with and of course the overall risk that your portfolio could 'bomb'.

Then there's the 'longevity' risk. Drawdown will really only pay you until your average life expectancy if you take roughly your 'GAD' amount.

Taking a 'tax free' income while you can, though, is a good compensating factor and maybe you should hide a fraction of this away for 'rainy days'.

To me, I consider the biggest 'danger' with drawdown is the reverse of £cost averaging. When you are building up a fund with regular payments, you can 'ride' the odd crash and adjustment because you are buying lots of 'cheap' units and making it up on the rise.

Drawdown gives you the reverse of that benefit. In other words, you could [would?] be drawing out at the bottom of a crash or adjusment - thus giving yourself much less chance of recovery during the following 'rise'.

okydoky

Thanks for response Loughton Monkey.
Failed to mention I am only 55 so appreciate remarks re "marginal" nature, and analogy with "pound cost averaging" fully understood.
My cash savings about £200K so looking to only draw about 3% pa from this as wife and other income takes monthly income to about £2K which is more than enough so "buying power" of cash pot should remain reasonably robust even with 5% inflation as only 11 years until state pension kicks in with current forecast of £700pm(with wifes pension of £800pm between state and small work pension).
My worry is the pension fund does "bomb" at some point. And that savings are eroded by inflation - currently split 50/50 between cash and shares/unit trusts.