Sequencing retirement income in the first five years

The early years of retirement are often the most uneven. Some people still receive part-time earnings, others bridge a gap before State Pension age, and many hold several pots with different tax treatments. Deciding which source to draw first is less about finding a single perfect rule and more about matching cash needs to tax bands and market conditions.

A common pattern in England is to use cash buffers and ISAs for early flexibility while leaving pension drawdown for later, especially when remaining in higher tax bands. That is not always right — someone with a large final-salary pension may want to delay State Pension or manage personal allowance carefully instead.

Market falls in the first few years of drawdown can be more damaging than falls later, simply because pounds withdrawn are no longer invested. Keeping one to three years of planned withdrawals in lower-volatility holdings can reduce the need to sell growth assets at a poor moment.

Revisit the sequence annually. Tax rules, personal allowance, and spending habits change. A plan written the year before you leave work rarely survives the first winter of actual retirement without small adjustments.

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