An advisers guide to creating a retirement income strategy  

Retirement is a major life transition, and one of the most important aspects of preparing for it is building a reliable income strategy. It’s not just about how much you’ve saved—it’s about how you use those savings to support your lifestyle, manage risks and maintain flexibility.

Here, we’ll walk through a practical, step-by-step approach to structuring retirement income, considering options that blend guaranteed income annuities with flexible withdrawals via pension drawdown.

The first step in any retirement income plan is to get a clear picture of your expected expenses. It helps to categorise these based on flexibility and priority. 

• Essential spending: These are your fixed, non-negotiable costs such as housing, utilities, insurance, food and healthcare 
• Discretionary spending: These are lifestyle choices, such as travel, hobbies, dining out, gifts and entertainment 

This distinction is important because it helps determine which income sources are likely to be best suited to cover each type of expense. 

Once you’ve categorised your retirement expenses into essential and discretionary, the next step is to strategically align your income sources to cover those needs in a sustainable and efficient way.

Essential spending — guaranteed income sources

These are the non-negotiable expenses that must be paid regardless of market conditions or personal circumstances. To cover these, you want stable, predictable income that you can count on for life.

Common sources include:

• State Pension. A foundational income stream that provides inflation-linked payments for life, however State pension arrangements are set by the Government and may be subject to change in the future
• Annuities. Insurance products that convert a lump sum into a guaranteed income stream, often for life

These sources are not affected by market volatility, so they provide peace of mind that your core living costs will always be covered.

Discretionary spending — flexible income sources

These are the ‘nice-to-have’ expenses that can vary year to year, like holidays, hobbies, or home improvements. For these, you want flexibility and control over how and when you access your money.

Common sources include:

• Pension drawdown. You keep your pension invested and withdraw income as needed. This allows you to adjust withdrawals based on market performance, take lump sums for big purchases and leave funds invested for potential growth. Unlike an annuity, drawdown doesn’t guarantee income for life and there is a risk you could run out of money. Pension investments may go down as well as up and you may get back less than you originally invested
• ISAs. Tax-efficient and accessible for ad hoc spending
• Other savings and investments. Can be accessible funds or used to save for future expenditure

Drawdown gives you freedom to adapt your income to your lifestyle and market conditions. You can reduce withdrawals in down markets or increase them when you need extra cash.

Here’s how this might look in a real-world scenario:

Cover the basics first

Use guaranteed income sources like the State Pension and annuities to cover your essential expenses. This provides peace of mind that your core needs will always be met, regardless of market conditions

Layer in flexibility

Use pension drawdown to fund discretionary spending. This allows you to adjust your withdrawals based on your lifestyle, market performance, or unexpected needs.

Stress-test with cashflow modelling

Use cashflow modelling to simulate different market scenarios and spending patterns. This helps ensure your drawdown strategy is sustainable and gives you confidence in your long-term plan.

Plan for the future

A well-structured strategy also opens up opportunities for:

• Estate planning: Leaving a legacy or gifting during your lifetime
• Care fee planning: Preparing for potential long-term care costs
• Debt management: Ensuring you’re debt-free in retirement

Of course, financial plans aren’t just about what looks good on paper. An often-overlooked part of a retirement income strategy is the emotional aspect and having trust in the fact that the plan is sound.

Many retirees are overly cautious, fearing they’ll run out of money. While being aware of the pitfalls of overspending is important, you should also ensure that you aren’t living a lower quality of life when you don’t have to.

A guaranteed income stream like an annuity, along with comprehensive cashflow modelling projections, can help alleviate these fears, encouraging retirees to enjoy their wealth while they can.

Knowing that your essential income is secure and you have a clear cashflow projection for your other investment assets can make it easier to spend confidently and even consider gifting or legacy planning without anxiety.

Creating a retirement income strategy is about more than numbers, it’s about building a plan that supports your lifestyle, adapts to change, and gives you peace of mind. By combining guaranteed income with flexible access, and by planning thoughtfully, you can enjoy retirement with confidence.

Before making a decision, it’s important to get personalised advice that will help you weigh up all the pros and cons.  At Evelyn Partners, we can help you define the retirement lifestyle you want to live and build the financial plan that works towards making it a reality. Book an appointment with one of our financial advisers to take control of your retirement income.