What we can do…

Factoring in the scenario of having another child, this family sees a shortfall specifically during the years that this child enters sec- ondary school and university. This further im- pacts the parents’ disposable income later in life.

Did you know?

• The cost of raising a child until they are 21 has risen to £222,458 on average. That is a 4% increase from last year, and a 58% rise from 2003.
• The biggest expenses are education and childcare. The former can rise up to £72,832 – this includes the new Uni- versity fees, but does not account for private schooling. The additional cost for private day-schooling comes in on average at around £106,428.
• The latter can amount to up to £63,738 which is a 61% rise.

How we help you in making the right decision…

The graphs overleaf compare a client’s situation if they were to retire at the age of 55, choosing either the annuity (the green bars) or drawdown income (the yellow bars) of income payment during retirement.

We have assumed that the client takes out the, under current legisla- tion, allowed tax free lump sum of 25% (shown in pink).

Your big decision: Income Drawdown vs. Annuity

The big decision is whether you take out this pension as an annuity (a financial product, which guaran- tees to pay a fixed amount every year, providing certainty through- out retirement) or if you opt for an income drawdown (this method leaves your pension fund invested in securities. You draw an income from this fund whenever needed).

The top graph represents the scenario where they take out an annuity upon retirement. He has a smaller yearly income than in the next case but rarely has to dip into his savings to cover his expenses.

The second graph represents the situation where they opt for income drawdown. The yearly income varies, giving the client more flexibility. The annual drawdown amount reduces over the years. The client has to dip into his savings and even has a small shortfall later in life.