Income withdrawal also known as income drawdown is a means for an individual to use their pension fund to provide tax-free cash and a controlable retirement income.

One major concern of many retired people is the disadvantages of living on a fixed income.  Income withdrawal / income drawdown allows individuals to avoid living on a fixed income by giving them control over how much income they draw.

When tax-free cash is drawn and the income withdrawal / income drawdown plan is set up, the individual is asked to choose the level of income they require (subject to a maximum).  This level may be as low as nil.  At any stage in the future the income may be changed (again subject to a maximum).

In many cases, people choose farily modest levels of initial income and this is often what is advised by many independent financial advisers.  The reason is simple, income not drawn is effectively stored up in the fund for the future allowing greater levels of income in the future.

As retired people grow older, health issues can causes greater demands on income, such as the need to pay for care.  By having the option at any time to increase income, greater long-term security is provided.

Also many people simply wish to be in control, rather than having their income dictated by third parties.  We can never know what changes to life and lifestyle the future might bring so why fix our income and thus limit our options?

In some cases it is necessary or beneficial for individuals to draw the maximum possible income.  Income withdrawal / income drawdown allows greater levels of income to be drawn than would be possible through the tradtional conventional pension annuity route.  It is however important to consider that high levels of income can outstrip the income and growth potential of the pension fund.  This can lead to a reduced pension fund in the future.  At the maximum level of income the chances are quite high that the income will not be sustainable for more than five or ten years.

Choosing to take retirement benefits, especially through income drawdown / income withdrawal is a very important financial decision with implications for the future as well as the present.  Taxes such as income tax and inheritance tax should be carefully considered.  Financial Adviser Hertfordshire recommends you consult and Independent Financial Advisers who will be able to provide all of the necessary advice and guidence.