A drawdown can be one of two things. It can either be the decline in an asset price or a portfolio value over a specific period from peak to trough or high to low, or the proportion of a pension that a retiree withdraws each year.
In the first definition, it is usually quoted as a percentage. It is used as one way to help work out the risk-to-reward of an investment.
In the second definition, drawdown is a critical factor in pension planning and at the moment of retirement. If the drawdown is too high during retirement, then a retiree could struggle late in life, while if drawdown is too low then a retiree may have a lot left over when they die.
