What £600,000 pays under the 4% guideline
The most widely used planning yardstick for turning a pot into income is the 4% guideline, popularised by US financial planner William Bengen's 1994 research: draw 4% of the pot in year one and adjust for inflation, and a balanced portfolio has historically lasted a 30-year retirement. On £600,000, that is £24,000 a year (£2,000 a month) before tax. It is a guideline rather than a promise — UK research often lands slightly below 4% for cautious portfolios — but it anchors the comparison below.
| Strategy | Gross income/yr | Income tax | Net/yr | Net/mo |
|---|---|---|---|---|
| 4% drawdown on the whole pot | £24,000 | £2,286 | £21,714 | £1,810 |
| Take tax-free cash (£150,000), then 4% of the rest | £18,000 | £1,086 | £16,914 | £1,410 |
| Level annuity on the whole pot (7.0%) | £42,000 | £5,886 | £36,114 | £3,010 |
| Take tax-free cash, annuity on the rest (7.0%) | £31,500 | £3,786 | £27,714 | £2,310 |
Annuity figures use a typical single-life, level rate at age 65 of 7.0% — Retirement Line's July 2026 tables quote a best rate of 7.86% (Aviva) and Which? cites around £7,000 per £100,000. Annuity quotes are personalised; these are illustrations, not advice.
How the income is taxed
Drawdown income and annuity payments are taxed as ordinary income against 2025/26 bands (thresholds frozen to 2028): nothing on the first £12,570, 20% to £50,270, 40% above. Crucially, pension income pays no National Insurance — on £35,973 of gross income, a worker would lose £1,872 to NI that a retiree simply keeps. Drawing £24,000 from this pot with no other income leaves £21,714 net; the tax numbers change once the state pension joins.
Adding the state pension
The full new state pension is £11,973 a year (£230.25 a week) in 2025/26 (GOV.UK). It is taxable and uses up most of the personal allowance, so it pushes the effective tax rate on your drawdown up even though the state pension itself arrives gross:
| Combined income | Gross/yr | Income tax | Net/yr | Net/mo |
|---|---|---|---|---|
| 4% drawdown + state pension | £35,973 | £4,681 | £31,292 | £2,608 |
| Level annuity (7.0%) + state pension | £53,973 | £9,021 | £44,952 | £3,746 |
On the combined 4%-plus-state-pension income of £35,973, the marginal rate on the next £1 drawn is 20.0% — worth knowing before taking ad-hoc lump sums on top.
The annuity alternative
An annuity swaps the pot for a guaranteed income for life. At July 2026 rates a healthy 65-year-old buying a single-life level annuity gets about 7.0% — £42,000 a year on this pot — with the best quoted rate at 7.86% (£47,160), per Retirement Line's rate tables; rates are near multi-decade highs on the back of higher gilt yields. The catches: a level annuity never rises, so inflation erodes it; single-life versions stop at death; and the purchase is irreversible. Many retirees mix the two — annuitise enough to cover fixed bills, keep the rest in drawdown.
The 25% tax-free lump sum
From age 55 (57 from April 2028) you can take £150,000 of this pot completely tax-free. That is 25% of the pot, within the £268,275 Lump Sum Allowance cap. Taking it all up front is not compulsory: slicing it out gradually (or using UFPLS withdrawals, each 25% tax-free) keeps more money invested in the pension's tax shelter and can smooth your tax bill across years.
£600,000: comfort with headroom
At £600,000 the 4% guideline pays £24,000, and with the state pension the total is £35,973 gross / £31,292 net — £2,608 a month without touching the £150,000 of tax-free cash. Everything still lands inside the basic-rate band, so the marginal rate on the next £1 is just 20.0%: this is close to the sweet spot where a sizeable income never meets 40% tax.
Headroom is the luxury here. You can draw an extra £10,000 in a heavy-spending year and pay only basic rate on it, or pause withdrawals in a bad market year and live off cash. One caution for couples: these figures are per person. If the pot is all in one partner's name, only one personal allowance shelters it; married couples with balanced pots pay materially less tax on the same household income — a reason to equalise contributions in the years before retirement.
Frequently asked questions
How much income will a £600,000 pension pot give me?
On the 4% sustainable-withdrawal guideline, £24,000 a year before tax. A single-life level annuity at 65 would pay roughly £42,000 to £47,160 a year at July 2026 rates (Retirement Line). Adding the full new state pension of £11,973 takes the drawdown route to £35,973 gross, about £31,292 after tax.
How much tax-free cash can I take from £600,000?
£150,000 — 25% of the pot, comfortably within the £268,275 Lump Sum Allowance. You can take it in one go or in slices alongside taxable withdrawals.
Do I pay National Insurance on pension income?
No. Pension income (drawdown, annuities and the state pension) is subject to income tax but not National Insurance — so a retiree keeps more of the same gross income than a worker does.
Is the 4% rule safe in the UK?
It is a guideline, not a guarantee. It comes from US research (William Bengen, 1994) assuming a 30-year retirement and a US portfolio; UK studies often suggest slightly lower safe rates for cautious investors. Flexible spending — cutting withdrawals after bad market years — materially improves the odds.
Still building the pot?
Pension calculator →