At GSI, we use a simple but powerful framework to help clients structure their retirement income: the three-legged stool.
It’s not new. In fact, it’s one of the oldest metaphors in financial planning. But it’s more relevant today than ever, especially in a world of changing tax rules, market volatility, and increasing personal responsibility for retirement income.
The Three Legs of Retirement Income
Imagine your retirement plan as a three-legged stool. Each leg represents a different source of income—and together, they provide the balance and stability you need to live well in retirement.
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State Pension – The Solid Base
The State Pension remains the most reliable source of income for most UK retirees. As of 2025, the full new State Pension pays just over £11,500 per year.
While not luxurious, it’s inflation-linked, guaranteed, and paid for life—making it a valuable base to build upon.
We often see the State Pension underappreciated in planning conversations. Perhaps because it’s not flashy or because people assume it’ll change or disappear. But when used properly in a wider income strategy, it can help reduce pressure on personal investments and offer peace of mind in later life.
Planning tip: Make sure your National Insurance record is complete. Gaps in your record can reduce your entitlement, but these can sometimes be bought back.
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Personal Pensions & SIPPs – The Workhorse
Your private pension or Self-Invested Personal Pension (SIPP) is likely the largest and most powerful tool in your retirement toolkit. These pensions grow free from income and capital gains tax, and withdrawals after age 55 (rising to 57 in 2028) offer great flexibility.
You can:
- Take a 25% tax-free lump sum
- Use flexi-access drawdown to take income as needed
- Leave unused funds to beneficiaries, often outside your estate for Inheritance Tax purposes
But with great flexibility comes great complexity. Taking too much, too soon can lead to tax inefficiency, or worse, a risk of running out of money later.
At GSI, we work with clients to build sustainable withdrawal strategies, considering:
- Income needs year by year
- The role of market performance
- Tax band planning (e.g. staying under the personal allowance or higher-rate thresholds)
- Legacy objectives for passing wealth on
A well-managed pension isn’t just an income source—it’s a planning engine.
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Other Assets – The Flexible Cushion
The third leg includes all the other assets that support your retirement:
- ISAs – tax-free withdrawals, highly flexible
- Cash savings – for short-term needs and emergencies
- Investment accounts – for taxable but accessible funds
- Property income – from rental properties or downsizing proceeds
- Part-time earnings – if you choose to ‘semi-retire’
- Inheritances – expected or already received
These assets offer adaptability and liquidity. For example, using ISAs in high-spending years can reduce your tax bill by keeping you below pension thresholds. Cash buffers allow you to avoid selling investments in volatile markets.
This leg often makes the difference between a plan that survives and one that thrives.
Sequence of Returns: The Quiet Risk
One of the lesser-known (but most important) risks in retirement planning is called the sequence of returns risk.
Put simply, this is the danger of suffering poor market returns early in retirement—just as you begin drawing income. When markets fall and withdrawals continue, portfolios can erode faster than expected, making recovery much harder later on.
At GSI, we manage this by:
- Keeping 2–3 years of income needs in cash or low-volatility assets, so you’re not forced to sell in a downturn
- Using natural income (interest and dividends) wherever possible
- Regular rebalancing to lock in gains and manage risk
- Reviewing annually to adapt based on actual performance and life events
Good planning doesn’t just focus on how much money you have—it focuses on how you use it.
The GSI Way: More Than Numbers
We know retirement is about more than money. It’s about freedom, security, and choices. It’s about time with grandchildren, travel, volunteering, new hobbies—or simply not having to check your bank account before planning the week ahead.
That’s why our philosophy is simple: Plan Well, Live Happy.
Yes, we’ll run the numbers. Yes, we’ll test assumptions. Yes, we’ll monitor fund performance. But more than that, we help clients:
- Set meaningful goals
- Reduce anxiety about outliving their money
- Understand their options in plain English
- Make decisions with confidence, not fear
Whether you’re five years from retirement or already living it, we’re here to help you make the most of what you’ve built—and to make sure it lasts.
Next Steps?
If you’d like to review your own three-legged stool—or you’re wondering whether it’s more of a unicycle at the moment—get in touch. We’d love to help.
Disclaimer
This content is for general information only and does not constitute financial, legal, tax, or investment advice. The value of investments can fall as well as rise, and you may not get back what you invest. Tax treatment depends on individual circumstances and may change.
GSI Wealth Management has been appointed as a distributor of services offered by Mitchell & Mitchell Asset Management Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA no: 992402). GSI does not act as an authorised representative of Mitchell & Mitchell. All views reflect GSI’s opinion at the time of writing. No personal liability is assumed by any contributor. We take care to ensure accuracy but accept no responsibility for loss from reliance on this material.
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