The order in which you draw income from your savings and investments can seriously affect your wealth, tax situation and how much money you pass on to your beneficiaries. While everyone’s circumstances and financial needs are different here are some tips you should consider:

1. First port of call for income – capital outside of tax wrappers
Any non-tax sheltered capital is the place to start, making use of available tax exemptions such as for Capital Gains Tax where possible.

2. Next - your ISAs
You can take income or capital from your ISA at any time and payments are tax-free, so they won’t affect the amount of tax you pay. Using your ISA savings can help you top up your income when moving from full-time work to reduced hours to full retirement. Note that ISAs still form part of your estate potentially attracting inheritance tax.

3. Use your pension tax-free cash sum
Up to 25% of your pension fund can be drawn, usually from age 55, and as the amount is tax-free it won’t affect the amount of tax you pay. Note however that the tax-free cash can be drawn down over many years.

4. Cash in small pension pots worth less than £10,000
With the exception of the 25% tax free cash withdrawal from your pension, any further income will be taxed under the income tax rules. Cashing in up to three small pension pots however does not trigger the ‘money purchase allowance’ limit and means you can keep saving into a pension within the annual allowance, currently £40,000, rather than see that limited to the newly introduced limit of £4,000.

Following these four simple steps can help your retirement income to last longer. If you are still working you may want to keep making pension and ISA savings. Be aware that once you take retirement income from income drawdown or a flexible annuity, any pension savings are limited now to £4,000 a year.

Also, you will need to be careful how much income you take out in any tax year to avoid crossing between tax bands and so paying more tax then you need to. In some years, however it may be worth taking extra pension income alongside income from other savings if you will still remain below a higher income tax threshold.

Another reason for taking your pension last is that under the pensions freedoms rules, in the event of your death any money in defined contribution pensions will not normally form part of your estate. If you die before age 75, your unused pension funds can be paid tax-free to your loved ones either as a lump sum or income. This also applies to annuities if you had bought a dependent’s annuity. If you die on or after age 75 the money can be passed on free of inheritance tax but is taxed at your beneficiaries’ marginal rate of income tax.