How to Manage Your Pension Pot When You Start Taking an Income
Stepping into retirement is a huge milestone you’ve worked hard to build your pension savings, and now it’s time to start enjoying the rewards. But managing your pension pot once you begin drawing an income can feel daunting. How do you make sure your money lasts as long as you do, while still giving yourself the financial freedom to live comfortably?
One practical and proven way to approach this is by dividing your pension into three “pots,” each designed for a specific purpose and time horizon.
Pot 1 – Cash for the Next Six Months
Think of this as your day-to-day spending pot. It holds around six months’ worth of income and is kept entirely in cash. This gives you peace of mind that your short-term spending needs are covered and there is no need to worry about the ups and downs of the markets. It’s your financial cushion for regular bills, holidays, and unexpected costs.
Pot 2 – Lower-Risk Income for the Next Two Years
Your second pot is designed to provide income over the next couple of years. It’s invested in a lower-risk solution something that offers a bit of growth potential, but not too much volatility. This pot can be topped up as you draw from Pot 1, keeping your short-term income needs secure while giving your longer-term investments time to grow.
Pot 3 – Long-Term Growth
The third pot holds the balance of your pension, and this is where your long-term growth happens. It’s invested in a well-diversified, higher-risk managed solution that aims to generate returns over time. Because you won’t need to access this money for several years, it can ride out market fluctuations and continue working hard for you in the background.
Why This Approach Works
The beauty of this three-pot structure is balance. You always have short-term spending money available, mid-term funds for stability, and long-term investments for growth. Even in retirement, most of your pension remains invested allowing you to benefit from compounding returns and helping your money last throughout your retirement journey.
Managing your pension this way gives you flexibility, control, and peace of mind. You can enjoy today, safe in the knowledge that tomorrow’s income needs are well planned for.
If you’d like to explore how a three-pot strategy could work for your retirement plan, get in touch so we can help you understand how this can be tailored to your individual goals and circumstances.
This information is for general guidance only and does not constitute financial advice. The value of investments can go down as well as up, and you may not get back the amount you invested. You should seek personalised advice before making decisions about your pension.