Approaching Retirement: The Five-Year Run-In That Decides How Long the Money Lasts

The answer, up front. Whether your money lasts is decided less by the size of your pot than by three things you control in the final five years: the order you draw different accounts (tax-free cash, ISA, taxable pension, State Pension), how you defend against a bad run of markets right at the start (sequencing risk), and whether you've squeezed the last high-relief contributions and NI top-ups before the door closes. Two people with identical pots can have retirements that differ by a decade of security — purely on sequencing and tax. This is the run-in that makes the difference.

This is educational information, not regulated financial advice or a personal recommendation.

Approaching retirement is the trigger that finally makes people seek proper help — and rightly, because the decisions are irreversible and the stakes are the rest of your life. Here's the professional's run-in.

The one idea most people miss

In your saving years, the enemy is not saving enough. In retirement, a new and underestimated enemy appears: sequencing risk — the order in which returns arrive. Drawing income from a portfolio that falls sharply in your first few years does permanent damage, because you're selling units cheap to live on and they're never there to recover. Two retirees with the same average return can end up worlds apart depending on when the bad years hit. The run-in is where you build the defences: a cash buffer, a drawdown order, and flexibility to not sell into a slump.

A decision framework for the run-in

1. Squeeze the last high-relief contributions — the door is closing.
The final working years are often peak earnings. Use the £60,000 annual allowance and carry-forward of unused allowance from the prior three years to make large, marginal-rate-relieved contributions while you still have the earnings to justify them. Once you retire, your ability to contribute (and the relief) shrinks. Also beware the MPAA: flexibly accessing a pension can cut future contributions to £10,000/year, so don't casually trigger it before you've finished contributing.

2. Nail down the State Pension foundation.
Get your State Pension forecast and NI record. Fill any gaps with voluntary NICs — often an exceptional return (a modest one-off cost can buy a lifetime of extra inflation-linked income). Decide whether to take the State Pension at State Pension age (66, rising to 67) or defer it for a higher amount. The State Pension is the inflation-proofed floor under everything else — get it right.

3. Plan the drawdown order, not just the amount.
This is where sequencing meets tax. A tax-efficient order typically layers:

• Tax-free cash: up to 25% of the pot, capped by the Lump Sum Allowance of £268,275 (the Lifetime Allowance was abolished in April 2024). Take it deliberately — you can phase it, not grab it all on day one.
• ISA withdrawals: tax-free and don't count as taxable income — invaluable for keeping your income within lower tax bands in any given year.
• Taxable pension income: drawn to use up your personal allowance and basic-rate band without tipping into higher rate.
  Blending these lets you create the income you need while paying far less tax than drawing it all from the pension.

4. Build the sequencing-risk defence.
Hold 1–3 years of essential spending in cash so that when markets fall, you spend the cash instead of selling investments cheap. This single buffer is the most effective protection against the worst retirement outcome. Combine it with a sustainable initial withdrawal rate and the flexibility to trim spending in bad years.

5. Decide the annuity-vs-drawdown balance — it's not all-or-nothing.
An annuity buys guaranteed, often inflation-linked income for life — certainty, at the cost of flexibility and inheritability. Drawdown keeps your money invested and inheritable, at the cost of investment and sequencing risk. The sophisticated answer is often a blend: annuitise enough to cover your essential fixed costs (so the floor is guaranteed), and keep the rest in drawdown for flexibility and growth. Guaranteed floor for the essentials, flexible pot for the rest.

6. Keep the IHT lens on.
Pensions usually sit outside your estate for inheritance tax, so the intuitive "spend the pension first" is often backwards — you may draw taxable non-pension assets and ISAs first and leave the pension as the tax-efficient asset to pass on. (Pension-IHT rules are under review; keep this current.)

See how long your money lasts. Connect your pots and budget and map it in the aggviz planner: model the drawdown order, a cash-buffer against a bad early run, and an annuity-plus-drawdown blend — free, on data you own.

A worked mini-example

Elaine, 60, has a £600,000 pension, a £150,000 ISA, and needs £30,000/year net.

• Sequencing defence: She sets aside £60,000 (two years of spending) in cash so an early market fall doesn't force her to sell investments cheap.
• Tax-efficient income: Each year she draws a mix — enough taxable pension income to use her personal allowance and basic-rate band, topped up with tax-free ISA withdrawals — so her actual tax bill stays low while she gets her £30,000 net. Drawing the whole £30,000+ from the pension would have pushed her into higher-rate tax unnecessarily.
• The floor: She annuitises a slice to guarantee her essential £18,000/year of fixed costs, and leaves the rest invested in drawdown for flexibility and to pass on outside her estate for IHT.

Same pot as her neighbour. Elaine's blend of order, buffer and floor could make her money last a decade longer in a bad-markets scenario.

Common mistakes

• Taking all 25% tax-free cash on day one with no plan for it, then leaving it in a taxed account.
• Drawing everything from the pension, needlessly paying higher-rate tax and exposing the IHT-efficient asset.
• No cash buffer — selling investments cheap in an early downturn (sequencing risk).
• Triggering the MPAA before finishing high-relief contributions.
• Leaving NI gaps unfilled — the cheapest inflation-linked income you'll ever buy.
• Going all-annuity or all-drawdown when a blend fits most people better.

A short run-in checklist

• Make final high-relief contributions (annual allowance + carry-forward) before you stop.
• Get your State Pension forecast; fill NI gaps; decide on deferral.
• Plan the drawdown order: tax-free cash (phased) → ISA → taxable pension within bands.
• Hold 1–3 years of spending in cash against sequencing risk.
• Model an annuity floor for essentials + drawdown for the rest.
• Keep the IHT lens on which assets to spend first.

Retirement isn't a finish line you cross with a number. It's an income you engineer — and the engineering happens in the five years before.

Related reading: Turning 40, 50 or 60 · When your savings cross a threshold · Moving country: cross-border money moves

Do it next

1. Model it yourself, free. Map your retirement in the aggviz planner — drawdown order, cash buffer, annuity-plus-drawdown blend — on data you own.
2. Want it looked at properly? Join the advice waitlist and a real person will call you when the time's right. Human, regulated, never automated.

This is educational information, not regulated financial advice or a personal recommendation. aggviz provides planning tools and education on data you own; pension, drawdown and annuity decisions are irreversible and depend on your circumstances — speak to a qualified retirement adviser before acting.

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