What are the advantages and disadvantages of a mix and match approach?
A mix and match approach could allow you to take advantage of the benefits of both an annuity and drawdown. The risks of each option still remain but by using both options you benefit from the security of an annuity and the flexibility of drawdown.
Annuities provide a secure income that won’t stop no matter how long you live. You can also choose for the income to continue to your spouse or partner after you die so you know they are taken care of. Whilst an annuity provides security it does not offer flexibility – once set up it cannot usually be amended to suit changing circumstances.
Drawdown is a more flexible alternative that allows you to amend your income when requested. It gives the potential for an increasing income depending on how well your investments perform, but it doesn’t provide any guarantee that the income will continue. If you cannot accept that your income might reduce or even run out you should carefully consider whether drawdown is the right option for your circumstances. If your investments perform badly, especially in the early years, and you continue to take income the consequences can be very detrimental, thus having a secure income from another source is generally regarded as wise.