Will I be able to retire in 13 years?

[newguy]

I think retiring at 55 will be challenging but not impossible.

Given you are 42, I don't think you can access your SIPP until you are 58. That means you'll need three years of spending in your ISA (£90k) to bridge the gap to pension access.

You say you earn £50k, which is an interesting figure because if you earn £50,001 or higher, you are a higher rate taxpayer, which means you receive 40% tax relief on SIPP contributions. Because of this, I would make higher SIPP contributions to get this tax relief. Over 13 years (42-55), the tax relief alone on the £500 you're putting in your ISA currently is worth approx. £52k with zero capital growth.

So, that would give you £1,400 + £833 pm going into your sipp per month. That's approx. £350k over 13 years. Add that to what you've already got, and you're at £600k with zero growth. That should give you a great chance of having a £750k pot by 58 to have a £30k pa income.

So now you've got a great plan for retiring at 58 the next step is to figure out where to get the £90k to bridge the gap from. You've already got £18k, so we only need £72k. I would do this by saving pay rises as they happen over the coming years. Also, if your pension is looking fabulous at 53 you could start to reduce contributions then.

For me, the most important thing is to have a rock-solid plan to ensure you can retire at 58 and only then worry about how to bridge the gap. Again, this is just what I would do. I don't know you're exact mortgage situation so I'm not going to comment on that.

Hang in there!
D

Maybe there is hope after all. Thank you dgprime

I actually earn £51,929. My pension is paid through a salary sacrifice scheme and I believe that is done before Tax is charged. The £1400 is made up of a 10% pension contribution by the company that I work for and an additional sum that I pay in. I believe I'm therefore benefiting from the 40% tax relief already.

I'm struggling to understand your figures. It might well being dense. Where are you getting the figure of £833 from. If I move the £500 from the ISA account to the Pension account wouldn't that be the equivalent of £500 + 40% of £500 = £700?

What I don't know is whether additional contributions would still get the 40% tax relief or whether there is a limit. The other problem is I suspect the government will have to stop the 40% contribution to pay for Covid which would really affect the plan. But there's nothing I could do about that.

Cheers
Newguy

[newguy]

Hi all

I am after some retirement advice. When I was twenty my first pension consultant asked me when I would like to retire, my response was when I'm 55. Well I'm now 42 and I'm concerned that my pension savings are nowhere near where I would need to be to retire at 55 and I may well have to wait until I'm 65 before I can finally leave work.

I am really hoping that you guys will be able to offer some advice about what actions I need to take to retire early and really whether I have any chance in actually doing so.


Background

I am a 42 year old male. I am not married and have no dependents and realistically I'm going to be single when I retire.


Financial Position

Pension Pot £246K - Invested in high growth, higher risk investments
ISA - £18K - Growth focused Investment Trusts
Premium Bonds £15K

House Price Estimate £300K
Outstanding Mortgage £119K - I will be 59 when the mortgage is paid off.

Salary £50K
Total Monthly Pension Contribution is £1400 (recently increased by another £200 per month)


I have had a look at some of the retirement planners on the web and they each seem to suggest different things.

When I retire I would like to do a lot of traveling abroad. When I go on holiday, I never stay at expensive hotels. I don't have a fancy car and I think I'm fairly frugal. I therefore thought that I would need £30K of income to live on. For those that are doing it is that going to be enough to live a good retirement with travel?

If you were in my position, what actions would you take now to be able to retire at 55? Do I stand any chance of being able to retire early>

Thank you
newguy

I'm assuming your pension commitment is through salary sacrifice?

Looking at some really rough and ready figures

Pension 279 (includes savings transferred to pension)
Debt 119
Assets 300

Projection 13 years

Existing Pension 552
Debt 000 (assumes £500 per month ISA allocated to residual mortgage debt)
Assets 395
Pension Contributions 328

Total pension pot projected £880K.

At 4% draw down that's £35k per annum.

It's achievable in my opinion.

AiY

Very much appreciated AiY

Yes the pension is paid through salary sacrifice scheme. My understanding is its done before tax is paid. The firms pays 10% of my salary plus my own contribution.

I don't think I would have to transfer the full £500 to the mortgage debt. I'm on a capital and repayment mortgage. I would have to increase the contributions slightly if I wanted to ensure it was paid off when I was 55

Newguy

[GrahamPlatt]

I think retiring at 55 will be challenging but not impossible.

Given you are 42, I don't think you can access your SIPP until you are 58. That means you'll need three years of spending in your ISA (£90k) to bridge the gap to pension access.

You say you earn £50k, which is an interesting figure because if you earn £50,001 or higher, you are a higher rate taxpayer, which means you receive 40% tax relief on SIPP contributions. Because of this, I would make higher SIPP contributions to get this tax relief. Over 13 years (42-55), the tax relief alone on the £500 you're putting in your ISA currently is worth approx. £52k with zero capital growth.

So, that would give you £1,400 + £833 pm going into your sipp per month. That's approx. £350k over 13 years. Add that to what you've already got, and you're at £600k with zero growth. That should give you a great chance of having a £750k pot by 58 to have a £30k pa income.

So now you've got a great plan for retiring at 58 the next step is to figure out where to get the £90k to bridge the gap from. You've already got £18k, so we only need £72k. I would do this by saving pay rises as they happen over the coming years. Also, if your pension is looking fabulous at 53 you could start to reduce contributions then.

For me, the most important thing is to have a rock-solid plan to ensure you can retire at 58 and only then worry about how to bridge the gap. Again, this is just what I would do. I don't know you're exact mortgage situation so I'm not going to comment on that.

Hang in there!
D

Bit of a fly in the ointment there - the retiring at 55 means there’s no income to contribute to the pension between then & 58.

[AsleepInYorkshire]

I'm assuming your pension commitment is through salary sacrifice?

Looking at some really rough and ready figures

Pension 279 (includes savings transferred to pension)
Debt 119
Assets 300

Projection 13 years

Existing Pension 552
Debt 000 (assumes £500 per month ISA allocated to residual mortgage debt)
Assets 395
Pension Contributions 328

Total pension pot projected £880K.

At 4% draw down that's £35k per annum.

It's achievable in my opinion.

AiY

Very much appreciated AiY

Yes the pension is paid through salary sacrifice scheme. My understanding is its done before tax is paid. The firms pays 10% of my salary plus my own contribution.

I don't think I would have to transfer the full £500 to the mortgage debt. I'm on a capital and repayment mortgage. I would have to increase the contributions slightly if I wanted to ensure it was paid off when I was 55

Newguy

You're more than welcome. Completely agree with your comments regarding the £500 reallocation - I was in rough and ready mode

Some more precise figures below (but as ever please do your own research)

I've never worked out how to do tables on this forum - perhaps need to teach myself

Growth rate net per annum, compounded over 13 years (2034) assuming £1,400 per month added to pension over entire period (starting pension sum £279K - assumes ISA and PB's transferred)

1% 596K
2% 669K
3% 752K
4% 846K
5% 952K
6% 1,072K
7% 1,208K
7.5% 1,282K

I can send you my spreadsheet if it helps you to check my figures. I would need time to clean it up though as it has personal information on it. PM me if this will help please. In fairness if there any errors in my spreadsheet a fresh pair of eyes would be appreciated anyway

Take care

AiY

[Dod101]

I am no longer fully up to speed with current tax and so on (I pay almost no tax and live quite well) but I would, despite the helpful calculations from others, caution the use of a SIPP. For some years I drewdown from my SIPP, but apart from having an aversion to paying tax, I found I just did not need the income and it now just sits amongst my assets being invested by me. I am secure in the knowledge that it is outside of my estate for inheritance tax and that should be helpful to my heirs, but I am much more interested in the here and now!

I also note the comments about living off capital if needs be. I would be very cautious about that especially up until about say 80, not because there is anything magical about aged 80, but until about then you need to have the freedom to do what you want, take off for an extended trip to the south seas say(Covid permitting), or buying something you really want, or maybe even finding a wife. Financial freedom is tremendously important, and cannot be over estimated.

If therefore you are intent on retiring at say 55, then I think you need to be prepared to do some serious belt tightening from now until then, and in the meantime find a few more Scottish Mortgage type investments. When you do, please let us know.

Dod

[airbus330]

Don't think anyone has brought this up.
Has the OP looked at what his pension money is actually invested in? My company pension had a default option of various growth funds, but with a heavy UK Bias. Also, some of the Underlying funds have charges that are higher than one would like. It took a few years before I realised this and discovered that hidden away was a global tracker option that had both better performance and lower charges. After I swapped into this, with no bond exposure either, my pension perked up considerably. Again, company schemes often default to a lifestyling option which steadily moves funds into safer waters in the five years running up to retirement. In the OP's case, given that he is going to have to accept higher risk to achieve his goal, this might not be appropriate.

addition.
If the OP anticipates any inheritances over the next 13 years, feeding these into the SIPP with Higher rate tax relief will improve the forecast.

[swill453]

If you count the benefit of the 25% tax free lump sum, the income tax effective is 15% rather than the 20% basic rate. So, anything that gets 40% relief in the way in and 15% tax on the way out is very worthwhile. And unlikely to last much longer IMO.

Sure. But I think we've established that the OP won't get very much relief at 40%.

Scott.

[nmdhqbc]

https://docs.google.com/spreadsheets/d/ ... sp=sharing

I modified one of my own spreadsheets with your info. There could be errors so don't anyone blindly trust it. It basically adds investment returns to your portfolio and subtracts or adds spending or contribution. The first sheet has returns of 4% all the way through. But you can play with that for more optimistic outcome. The second sheet is where I've randomly put in some bad sequence of returns in but got to the 4% overall. Just as you retire the investment returns go bad. Even worse case scenario for you. Really it's for playing with the numbers more than the exact numbers i've entered here.

A major thing missing though is any tax considerations. My numbers a lower than these so I do not have any tax implications to consider in my spreadsheets. Maybe it can be modified to take into account.

Another thing you might want to do is adjust the spending column when your mortgage is paid off at age 59. Less spending then. Or maybe put in less smooth spending numbers. A car might be bought every x number of years for instance.

I personally do not have a state pension column in my own spreadsheet as I do not want to rely on it but it's there for completeness.

Not sure if it shows the author on googlesheets but FYI - that's a randomly named google account not my name.

[monabri]

Your ISA is earning 2%...? ( small error but might as well mod it in your sheet)

[newguy]

Don't think anyone has brought this up.
Has the OP looked at what his pension money is actually invested in? My company pension had a default option of various growth funds, but with a heavy UK Bias. Also, some of the Underlying funds have charges that are higher than one would like. It took a few years before I realised this and discovered that hidden away was a global tracker option that had both better performance and lower charges. After I swapped into this, with no bond exposure either, my pension perked up considerably. Again, company schemes often default to a lifestyling option which steadily moves funds into safer waters in the five years running up to retirement. In the OP's case, given that he is going to have to accept higher risk to achieve his goal, this might not be appropriate.

addition.
If the OP anticipates any inheritances over the next 13 years, feeding these into the SIPP with Higher rate tax relief will improve the forecast.

Hi Airbus330. My pension funds are going into some high growth funds and I'm happy with the results / costs for those. Also my parents are in their 70s. They are comfortable but I don't expect any sort of inheritance.
Newguy

[newguy]

Thanks everybody for your comments.


I have had a look at my detail budget and if I scrimp and save I can actually throw another £700 per month to my retirement.

Here's a very simple calculation assuming now growth. I'm not sure how to factor that in.


Current Position

Pension Pot £279,000
House £300,000
Debt £119,000


Position at 55 (assuming no growth at all)

Pension Pot £279,000
Additional Pension Payments £1400 per month + additional £700 with 40% tax relief - £980 per month. This would be £2380 per month over 13 years which equals £371,280
House £300,000
Debt 0 - pay off mortgage at 55


This would leave me with a pot of about £650K but assuming no growth at all. I'll be honest I'm not entirely sure how to factor in growth at this point.


Questions

1. I'm getting very confused about the salary exchange scheme I am in. My understanding is that everything I throw towards the pension got me 40% relief meaning that £60 was equivalent of £100. Some of you seem to suggest there is a limit and I might not be getting the full 40%.
2. If the chancellor reduces the limit to say 20% rather than 40% (assuming I'm understanding the salary exchange correctly), it won't be worth putting into the pension plan. It would be better to put into a ISA for the added flexibility
If the chancellor does reduce the limit to 20% my additional pension payments over thirteen years would actually reduce by 20% to £297K and I would l

[AsleepInYorkshire]

1%

Code: Select all

Newguy |        |    |        |       |       |           |        |       |              
Year   | NG Age | No | Op Bal | Contr | Total | Draw Down | Growth | Total | Tax Free Cash
       |        |    |        |       |       |           |        |       |              
       |        |    |        |       |       |           |        |       |              
  1979 |        |    |        | 16.80 |       |     4.00% |  1.00% |       |        25.00%
  2021 |     42 |  1 |  279.0 |  16.8 | 295.8 |         0 |    2.9 | 298.7 |           0.0
  2022 |     43 |  2 |  298.7 |  16.8 | 315.5 |         0 |    3.1 | 318.6 |           0.0
  2023 |     44 |  3 |  318.6 |  16.8 | 335.4 |         0 |    3.3 | 338.6 |           0.0
  2024 |     45 |  4 |  338.6 |  16.8 | 355.4 |         0 |    3.5 | 358.9 |           0.0
  2025 |     46 |  5 |  358.9 |  16.8 | 375.7 |         0 |    3.7 | 379.4 |           0.0
  2026 |     47 |  6 |  379.4 |  16.8 | 396.2 |         0 |    3.9 | 400.1 |           0.0
  2027 |     48 |  7 |  400.1 |  16.8 | 416.9 |         0 |    4.1 | 421.0 |           0.0
  2028 |     49 |  8 |  421.0 |  16.8 | 437.8 |         0 |    4.3 | 442.1 |           0.0
  2029 |     50 |  9 |  442.1 |  16.8 | 458.9 |         0 |    4.5 | 463.4 |           0.0
  2030 |     51 | 10 |  463.4 |  16.8 | 480.2 |         0 |    4.7 | 484.9 |           0.0
  2031 |     52 | 11 |  484.9 |  16.8 | 501.7 |         0 |    4.9 | 506.6 |           0.0
  2032 |     53 | 12 |  506.6 |  16.8 | 523.4 |         0 |    5.2 | 528.6 |           0.0
  2033 |     54 | 13 |  528.6 |  16.8 | 545.4 |         0 |    5.4 | 550.8 |           0.0
  2034 |     55 | 14 |  550.8 |  16.8 | 567.6 |         0 |    5.6 | 573.2 |           0.0
  2035 |     56 | 15 |  573.2 |   0.0 | 573.2 | (22.9)    |    5.7 | 556.0 |         139.0
  2036 |     57 | 16 |  417.0 |   0.0 | 417.0 | (16.7)    |    4.2 | 404.5 |           0.0
  2037 |     58 | 17 |  404.5 |   0.0 | 404.5 | (16.2)    |    4.0 | 392.3 |           0.0
  2038 |     59 | 18 |  392.3 |   0.0 | 392.3 | (15.7)    |    3.9 | 380.6 |           0.0
  2039 |     60 | 19 |  380.6 |   0.0 | 380.6 | (15.2)    |    3.8 | 369.2 |           0.0
  2040 |     61 | 20 |  369.2 |   0.0 | 369.2 | (14.8)    |    3.7 | 358.1 |           0.0
  2041 |     62 | 21 |  358.1 |   0.0 | 358.1 | (14.3)    |    3.6 | 347.3 |           0.0
  2042 |     63 | 22 |  347.3 |   0.0 | 347.3 | (13.9)    |    3.5 | 336.9 |           0.0
  2043 |     64 | 23 |  336.9 |   0.0 | 336.9 | (13.5)    |    3.4 | 326.8 |           0.0
  2044 |     65 | 24 |  326.8 |   0.0 | 326.8 | (13.1)    |    3.3 | 317.0 |           0.0
  2045 |     66 | 25 |  317.0 |   0.0 | 317.0 | (12.7)    |    3.2 | 307.5 |           0.0
  2046 |     67 | 26 |  307.5 |   0.0 | 307.5 | (12.3)    |    3.1 | 298.3 |           0.0
  2047 |     68 | 27 |  298.3 |   0.0 | 298.3 | (11.9)    |    3.0 | 289.3 |           0.0
  2048 |     69 | 28 |  289.3 |   0.0 | 289.3 | (11.6)    |    2.9 | 280.6 |           0.0
       |        |    |        | 235.2 | 289.3 | (204.7)   |  110.2 | 280.6 |              
      

2%

Code: Select all

Newguy |        |    |        |       |       |           |        |       |              
Year   | NG Age | No | Op Bal | Contr | Total | Draw Down | Growth | Total | Tax Free Cash
       |        |    |        |       |       |           |        |       |              
       |        |    |        |       |       |           |        |       |              
  1979 |        |    |        | 16.80 |       |     4.00% |  2.00% |       |        25.00%
  2021 |     42 |  1 |  279.0 |  16.8 | 295.8 |         0 |    5.8 | 301.6 |           0.0
  2022 |     43 |  2 |  301.6 |  16.8 | 318.4 |         0 |    6.2 | 324.6 |           0.0
  2023 |     44 |  3 |  324.6 |  16.8 | 341.4 |         0 |    6.7 | 348.0 |           0.0
  2024 |     45 |  4 |  348.0 |  16.8 | 364.8 |         0 |    7.1 | 372.0 |           0.0
  2025 |     46 |  5 |  372.0 |  16.8 | 388.8 |         0 |    7.6 | 396.4 |           0.0
  2026 |     47 |  6 |  396.4 |  16.8 | 413.2 |         0 |    8.1 | 421.3 |           0.0
  2027 |     48 |  7 |  421.3 |  16.8 | 438.1 |         0 |    8.6 | 446.7 |           0.0
  2028 |     49 |  8 |  446.7 |  16.8 | 463.5 |         0 |    9.1 | 472.6 |           0.0
  2029 |     50 |  9 |  472.6 |  16.8 | 489.4 |         0 |    9.6 | 499.1 |           0.0
  2030 |     51 | 10 |  499.1 |  16.8 | 515.9 |         0 |   10.2 | 526.0 |           0.0
  2031 |     52 | 11 |  526.0 |  16.8 | 542.8 |         0 |   10.7 | 553.5 |           0.0
  2032 |     53 | 12 |  553.5 |  16.8 | 570.3 |         0 |   11.3 | 581.6 |           0.0
  2033 |     54 | 13 |  581.6 |  16.8 | 598.4 |         0 |   11.8 | 610.2 |           0.0
  2034 |     55 | 14 |  610.2 |  16.8 | 627.0 |         0 |   12.4 | 639.4 |           0.0
  2035 |     56 | 15 |  639.4 |   0.0 | 639.4 | (25.6)    |   12.8 | 626.6 |         156.7
  2036 |     57 | 16 |  470.0 |   0.0 | 470.0 | (18.8)    |    9.4 | 460.6 |           0.0
  2037 |     58 | 17 |  460.6 |   0.0 | 460.6 | (18.4)    |    9.2 | 451.3 |           0.0
  2038 |     59 | 18 |  451.3 |   0.0 | 451.3 | (18.1)    |    9.0 | 442.3 |           0.0
  2039 |     60 | 19 |  442.3 |   0.0 | 442.3 | (17.7)    |    8.8 | 433.5 |           0.0
  2040 |     61 | 20 |  433.5 |   0.0 | 433.5 | (17.3)    |    8.7 | 424.8 |           0.0
  2041 |     62 | 21 |  424.8 |   0.0 | 424.8 | (17.0)    |    8.5 | 416.3 |           0.0
  2042 |     63 | 22 |  416.3 |   0.0 | 416.3 | (16.7)    |    8.3 | 408.0 |           0.0
  2043 |     64 | 23 |  408.0 |   0.0 | 408.0 | (16.3)    |    8.2 | 399.8 |           0.0
  2044 |     65 | 24 |  399.8 |   0.0 | 399.8 | (16.0)    |    8.0 | 391.8 |           0.0
  2045 |     66 | 25 |  391.8 |   0.0 | 391.8 | (15.7)    |    7.8 | 384.0 |           0.0
  2046 |     67 | 26 |  384.0 |   0.0 | 384.0 | (15.4)    |    7.7 | 376.3 |           0.0
  2047 |     68 | 27 |  376.3 |   0.0 | 376.3 | (15.1)    |    7.5 | 368.8 |           0.0
  2048 |     69 | 28 |  368.8 |   0.0 | 368.8 | (14.8)    |    7.4 | 361.4 |           0.0
       |        |    |        | 235.2 | 368.8 | (242.7)   |  246.5 | 361.4 |              
      

3%

Code: Select all

Newguy |        |    |        |       |       |           |        |       |              
Year   | NG Age | No | Op Bal | Contr | Total | Draw Down | Growth | Total | Tax Free Cash
       |        |    |        |       |       |           |        |       |              
       |        |    |        |       |       |           |        |       |              
  1979 |        |    |        | 16.80 |       |     4.00% |  3.00% |       |        25.00%
  2021 |     42 |  1 |  279.0 |  16.8 | 295.8 |         0 |    8.6 | 304.4 |           0.0
  2022 |     43 |  2 |  304.4 |  16.8 | 321.2 |         0 |    9.4 | 330.6 |           0.0
  2023 |     44 |  3 |  330.6 |  16.8 | 347.4 |         0 |   10.2 | 357.6 |           0.0
  2024 |     45 |  4 |  357.6 |  16.8 | 374.4 |         0 |   11.0 | 385.4 |           0.0
  2025 |     46 |  5 |  385.4 |  16.8 | 402.2 |         0 |   11.8 | 414.1 |           0.0
  2026 |     47 |  6 |  414.1 |  16.8 | 430.9 |         0 |   12.7 | 443.6 |           0.0
  2027 |     48 |  7 |  443.6 |  16.8 | 460.4 |         0 |   13.6 | 474.0 |           0.0
  2028 |     49 |  8 |  474.0 |  16.8 | 490.8 |         0 |   14.5 | 505.2 |           0.0
  2029 |     50 |  9 |  505.2 |  16.8 | 522.0 |         0 |   15.4 | 537.5 |           0.0
  2030 |     51 | 10 |  537.5 |  16.8 | 554.3 |         0 |   16.4 | 570.7 |           0.0
  2031 |     52 | 11 |  570.7 |  16.8 | 587.5 |         0 |   17.4 | 604.9 |           0.0
  2032 |     53 | 12 |  604.9 |  16.8 | 621.7 |         0 |   18.4 | 640.1 |           0.0
  2033 |     54 | 13 |  640.1 |  16.8 | 656.9 |         0 |   19.5 | 676.4 |           0.0
  2034 |     55 | 14 |  676.4 |  16.8 | 693.2 |         0 |   20.6 | 713.7 |           0.0
  2035 |     56 | 15 |  713.7 |   0.0 | 713.7 | (28.5)    |   21.4 | 706.6 |         176.6
  2036 |     57 | 16 |  529.9 |   0.0 | 529.9 | (21.2)    |   15.9 | 524.6 |           0.0
  2037 |     58 | 17 |  524.6 |   0.0 | 524.6 | (21.0)    |   15.7 | 519.4 |           0.0
  2038 |     59 | 18 |  519.4 |   0.0 | 519.4 | (20.8)    |   15.6 | 514.2 |           0.0
  2039 |     60 | 19 |  514.2 |   0.0 | 514.2 | (20.6)    |   15.4 | 509.1 |           0.0
  2040 |     61 | 20 |  509.1 |   0.0 | 509.1 | (20.4)    |   15.3 | 504.0 |           0.0
  2041 |     62 | 21 |  504.0 |   0.0 | 504.0 | (20.2)    |   15.1 | 498.9 |           0.0
  2042 |     63 | 22 |  498.9 |   0.0 | 498.9 | (20.0)    |   15.0 | 493.9 |           0.0
  2043 |     64 | 23 |  493.9 |   0.0 | 493.9 | (19.8)    |   14.8 | 489.0 |           0.0
  2044 |     65 | 24 |  489.0 |   0.0 | 489.0 | (19.6)    |   14.7 | 484.1 |           0.0
  2045 |     66 | 25 |  484.1 |   0.0 | 484.1 | (19.4)    |   14.5 | 479.3 |           0.0
  2046 |     67 | 26 |  479.3 |   0.0 | 479.3 | (19.2)    |   14.4 | 474.5 |           0.0
  2047 |     68 | 27 |  474.5 |   0.0 | 474.5 | (19.0)    |   14.2 | 469.7 |           0.0
  2048 |     69 | 28 |  469.7 |   0.0 | 469.7 | (18.8)    |   14.1 | 465.0 |           0.0
       |        |    |        | 235.2 | 469.7 | (288.2)   |  415.7 | 465.0 |              
      

4%

Code: Select all

Newguy |        |    |        |       |       |           |        |       |              
Year   | NG Age | No | Op Bal | Contr | Total | Draw Down | Growth | Total | Tax Free Cash
       |        |    |        |       |       |           |        |       |              
       |        |    |        |       |       |           |        |       |              
  1979 |        |    |        | 16.80 |       |     4.00% |  4.00% |       |        25.00%
  2021 |     42 |  1 |  279.0 |  16.8 | 295.8 |         0 |   11.5 | 307.3 |           0.0
  2022 |     43 |  2 |  307.3 |  16.8 | 324.1 |         0 |   12.7 | 336.8 |           0.0
  2023 |     44 |  3 |  336.8 |  16.8 | 353.6 |         0 |   13.8 | 367.4 |           0.0
  2024 |     45 |  4 |  367.4 |  16.8 | 384.2 |         0 |   15.1 | 399.3 |           0.0
  2025 |     46 |  5 |  399.3 |  16.8 | 416.1 |         0 |   16.3 | 432.4 |           0.0
  2026 |     47 |  6 |  432.4 |  16.8 | 449.2 |         0 |   17.7 | 466.9 |           0.0
  2027 |     48 |  7 |  466.9 |  16.8 | 483.7 |         0 |   19.0 | 502.7 |           0.0
  2028 |     49 |  8 |  502.7 |  16.8 | 519.5 |         0 |   20.5 | 540.0 |           0.0
  2029 |     50 |  9 |  540.0 |  16.8 | 556.8 |         0 |   22.0 | 578.7 |           0.0
  2030 |     51 | 10 |  578.7 |  16.8 | 595.5 |         0 |   23.5 | 619.1 |           0.0
  2031 |     52 | 11 |  619.1 |  16.8 | 635.9 |         0 |   25.1 | 661.0 |           0.0
  2032 |     53 | 12 |  661.0 |  16.8 | 677.8 |         0 |   26.8 | 704.6 |           0.0
  2033 |     54 | 13 |  704.6 |  16.8 | 721.4 |         0 |   28.5 | 749.9 |           0.0
  2034 |     55 | 14 |  749.9 |  16.8 | 766.7 |         0 |   30.4 | 797.1 |           0.0
  2035 |     56 | 15 |  797.1 |   0.0 | 797.1 | (31.9)    |   31.9 | 797.1 |         199.3
  2036 |     57 | 16 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2037 |     58 | 17 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2038 |     59 | 18 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2039 |     60 | 19 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2040 |     61 | 20 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2041 |     62 | 21 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2042 |     63 | 22 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2043 |     64 | 23 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2044 |     65 | 24 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2045 |     66 | 25 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2046 |     67 | 26 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2047 |     68 | 27 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
  2048 |     69 | 28 |  597.8 |   0.0 | 597.8 | (23.9)    |   23.9 | 597.8 |           0.0
       |        |    |        | 235.2 | 597.8 | (342.7)   |  625.6 | 597.8 |              
      

5%

Code: Select all

Newguy |        |    |        |       |       |           |        |       |              
Year   | NG Age | No | Op Bal | Contr | Total | Draw Down | Growth | Total | Tax Free Cash
       |        |    |        |       |       |           |        |       |              
       |        |    |        |       |       |           |        |       |              
  1979 |        |    |        | 16.80 |       |     4.00% |  5.00% |       |        25.00%
  2021 |     42 |  1 |  279.0 |  16.8 | 295.8 |         0 |   14.4 | 310.2 |           0.0
  2022 |     43 |  2 |  310.2 |  16.8 | 327.0 |         0 |   16.0 | 343.0 |           0.0
  2023 |     44 |  3 |  343.0 |  16.8 | 359.8 |         0 |   17.6 | 377.4 |           0.0
  2024 |     45 |  4 |  377.4 |  16.8 | 394.2 |         0 |   19.3 | 413.5 |           0.0
  2025 |     46 |  5 |  413.5 |  16.8 | 430.3 |         0 |   21.1 | 451.4 |           0.0
  2026 |     47 |  6 |  451.4 |  16.8 | 468.2 |         0 |   23.0 | 491.2 |           0.0
  2027 |     48 |  7 |  491.2 |  16.8 | 508.0 |         0 |   25.0 | 533.1 |           0.0
  2028 |     49 |  8 |  533.1 |  16.8 | 549.9 |         0 |   27.1 | 577.0 |           0.0
  2029 |     50 |  9 |  577.0 |  16.8 | 593.8 |         0 |   29.3 | 623.1 |           0.0
  2030 |     51 | 10 |  623.1 |  16.8 | 639.9 |         0 |   31.6 | 671.5 |           0.0
  2031 |     52 | 11 |  671.5 |  16.8 | 688.3 |         0 |   34.0 | 722.3 |           0.0
  2032 |     53 | 12 |  722.3 |  16.8 | 739.1 |         0 |   36.6 | 775.7 |           0.0
  2033 |     54 | 13 |  775.7 |  16.8 | 792.5 |         0 |   39.2 | 831.7 |           0.0
  2034 |     55 | 14 |  831.7 |  16.8 | 848.5 |         0 |   42.0 | 890.6 |           0.0
  2035 |     56 | 15 |  890.6 |   0.0 | 890.6 | (35.6)    |   44.5 | 899.5 |         224.9
  2036 |     57 | 16 |  674.6 |   0.0 | 674.6 | (27.0)    |   33.7 | 681.3 |           0.0
  2037 |     58 | 17 |  681.3 |   0.0 | 681.3 | (27.3)    |   34.1 | 688.2 |           0.0
  2038 |     59 | 18 |  688.2 |   0.0 | 688.2 | (27.5)    |   34.4 | 695.0 |           0.0
  2039 |     60 | 19 |  695.0 |   0.0 | 695.0 | (27.8)    |   34.8 | 702.0 |           0.0
  2040 |     61 | 20 |  702.0 |   0.0 | 702.0 | (28.1)    |   35.1 | 709.0 |           0.0
  2041 |     62 | 21 |  709.0 |   0.0 | 709.0 | (28.4)    |   35.5 | 716.1 |           0.0
  2042 |     63 | 22 |  716.1 |   0.0 | 716.1 | (28.6)    |   35.8 | 723.3 |           0.0
  2043 |     64 | 23 |  723.3 |   0.0 | 723.3 | (28.9)    |   36.2 | 730.5 |           0.0
  2044 |     65 | 24 |  730.5 |   0.0 | 730.5 | (29.2)    |   36.5 | 737.8 |           0.0
  2045 |     66 | 25 |  737.8 |   0.0 | 737.8 | (29.5)    |   36.9 | 745.2 |           0.0
  2046 |     67 | 26 |  745.2 |   0.0 | 745.2 | (29.8)    |   37.3 | 752.6 |           0.0
  2047 |     68 | 27 |  752.6 |   0.0 | 752.6 | (30.1)    |   37.6 | 760.2 |           0.0
  2048 |     69 | 28 |  760.2 |   0.0 | 760.2 | (30.4)    |   38.0 | 767.8 |           0.0
       |        |    |        | 235.2 | 760.2 | (408.3)   |  886.7 | 767.8 |              
      

6%

Code: Select all

Newguy |        |    |        |       |       |           |         |         |              
Year   | NG Age | No | Op Bal | Contr | Total | Draw Down | Growth  | Total   | Tax Free Cash
       |        |    |        |       |       |           |         |         |              
       |        |    |        |       |       |           |         |         |              
  1979 |        |    |        | 16.80 |       |     4.00% |   6.00% |         |        25.00%
  2021 |     42 |  1 |  279.0 |  16.8 | 295.8 |         0 |    17.3 |   313.1 |           0.0
  2022 |     43 |  2 |  313.1 |  16.8 | 329.9 |         0 |    19.3 |   349.2 |           0.0
  2023 |     44 |  3 |  349.2 |  16.8 | 366.0 |         0 |    21.5 |   387.5 |           0.0
  2024 |     45 |  4 |  387.5 |  16.8 | 404.3 |         0 |    23.8 |   428.1 |           0.0
  2025 |     46 |  5 |  428.1 |  16.8 | 444.9 |         0 |    26.2 |   471.1 |           0.0
  2026 |     47 |  6 |  471.1 |  16.8 | 487.9 |         0 |    28.8 |   516.8 |           0.0
  2027 |     48 |  7 |  516.8 |  16.8 | 533.6 |         0 |    31.6 |   565.1 |           0.0
  2028 |     49 |  8 |  565.1 |  16.8 | 581.9 |         0 |    34.5 |   616.4 |           0.0
  2029 |     50 |  9 |  616.4 |  16.8 | 633.2 |         0 |    37.5 |   670.7 |           0.0
  2030 |     51 | 10 |  670.7 |  16.8 | 687.5 |         0 |    40.8 |   728.3 |           0.0
  2031 |     52 | 11 |  728.3 |  16.8 | 745.1 |         0 |    44.2 |   789.3 |           0.0
  2032 |     53 | 12 |  789.3 |  16.8 | 806.1 |         0 |    47.9 |   854.0 |           0.0
  2033 |     54 | 13 |  854.0 |  16.8 | 870.8 |         0 |    51.8 |   922.6 |           0.0
  2034 |     55 | 14 |  922.6 |  16.8 | 939.4 |         0 |    55.9 |   995.3 |           0.0
  2035 |     56 | 15 |  995.3 |   0.0 | 995.3 | (39.8)    |    59.7 | 1,015.2 |         253.8
  2036 |     57 | 16 |  761.4 |   0.0 | 761.4 | (30.5)    |    45.7 |   776.6 |           0.0
  2037 |     58 | 17 |  776.6 |   0.0 | 776.6 | (31.1)    |    46.6 |   792.2 |           0.0
  2038 |     59 | 18 |  792.2 |   0.0 | 792.2 | (31.7)    |    47.5 |   808.0 |           0.0
  2039 |     60 | 19 |  808.0 |   0.0 | 808.0 | (32.3)    |    48.5 |   824.2 |           0.0
  2040 |     61 | 20 |  824.2 |   0.0 | 824.2 | (33.0)    |    49.5 |   840.7 |           0.0
  2041 |     62 | 21 |  840.7 |   0.0 | 840.7 | (33.6)    |    50.4 |   857.5 |           0.0
  2042 |     63 | 22 |  857.5 |   0.0 | 857.5 | (34.3)    |    51.4 |   874.6 |           0.0
  2043 |     64 | 23 |  874.6 |   0.0 | 874.6 | (35.0)    |    52.5 |   892.1 |           0.0
  2044 |     65 | 24 |  892.1 |   0.0 | 892.1 | (35.7)    |    53.5 |   910.0 |           0.0
  2045 |     66 | 25 |  910.0 |   0.0 | 910.0 | (36.4)    |    54.6 |   928.2 |           0.0
  2046 |     67 | 26 |  928.2 |   0.0 | 928.2 | (37.1)    |    55.7 |   946.7 |           0.0
  2047 |     68 | 27 |  946.7 |   0.0 | 946.7 | (37.9)    |    56.8 |   965.7 |           0.0
  2048 |     69 | 28 |  965.7 |   0.0 | 965.7 | (38.6)    |    57.9 |   985.0 |           0.0
       |        |    |        | 235.2 | 965.7 | (486.9)   | 1,211.5 |   985.0 |              
      

7%

Code: Select all

Newguy |        |    |         |       |         |           |         |         |              
Year   | NG Age | No | Op Bal  | Contr | Total   | Draw Down | Growth  | Total   | Tax Free Cash
       |        |    |         |       |         |           |         |         |              
       |        |    |         |       |         |           |         |         |              
  1979 |        |    |         | 16.80 |         |     4.00% |   7.00% |         |        25.00%
  2021 |     42 |  1 |   279.0 |  16.8 |   295.8 |         0 |    20.2 |   316.0 |           0.0
  2022 |     43 |  2 |   316.0 |  16.8 |   332.8 |         0 |    22.8 |   355.5 |           0.0
  2023 |     44 |  3 |   355.5 |  16.8 |   372.3 |         0 |    25.5 |   397.8 |           0.0
  2024 |     45 |  4 |   397.8 |  16.8 |   414.6 |         0 |    28.5 |   443.1 |           0.0
  2025 |     46 |  5 |   443.1 |  16.8 |   459.9 |         0 |    31.7 |   491.6 |           0.0
  2026 |     47 |  6 |   491.6 |  16.8 |   508.4 |         0 |    35.0 |   543.4 |           0.0
  2027 |     48 |  7 |   543.4 |  16.8 |   560.2 |         0 |    38.7 |   598.9 |           0.0
  2028 |     49 |  8 |   598.9 |  16.8 |   615.7 |         0 |    42.6 |   658.3 |           0.0
  2029 |     50 |  9 |   658.3 |  16.8 |   675.1 |         0 |    46.7 |   721.8 |           0.0
  2030 |     51 | 10 |   721.8 |  16.8 |   738.6 |         0 |    51.2 |   789.7 |           0.0
  2031 |     52 | 11 |   789.7 |  16.8 |   806.5 |         0 |    55.9 |   862.5 |           0.0
  2032 |     53 | 12 |   862.5 |  16.8 |   879.3 |         0 |    61.0 |   940.3 |           0.0
  2033 |     54 | 13 |   940.3 |  16.8 |   957.1 |         0 |    66.5 | 1,023.5 |           0.0
  2034 |     55 | 14 | 1,023.5 |  16.8 | 1,040.3 |         0 |    72.3 | 1,112.6 |           0.0
  2035 |     56 | 15 | 1,112.6 |   0.0 | 1,112.6 | (44.5)    |    77.9 | 1,146.0 |         286.5
  2036 |     57 | 16 |   859.5 |   0.0 |   859.5 | (34.4)    |    60.2 |   885.3 |           0.0
  2037 |     58 | 17 |   885.3 |   0.0 |   885.3 | (35.4)    |    62.0 |   911.8 |           0.0
  2038 |     59 | 18 |   911.8 |   0.0 |   911.8 | (36.5)    |    63.8 |   939.2 |           0.0
  2039 |     60 | 19 |   939.2 |   0.0 |   939.2 | (37.6)    |    65.7 |   967.4 |           0.0
  2040 |     61 | 20 |   967.4 |   0.0 |   967.4 | (38.7)    |    67.7 |   996.4 |           0.0
  2041 |     62 | 21 |   996.4 |   0.0 |   996.4 | (39.9)    |    69.7 | 1,026.3 |           0.0
  2042 |     63 | 22 | 1,026.3 |   0.0 | 1,026.3 | (41.1)    |    71.8 | 1,057.1 |           0.0
  2043 |     64 | 23 | 1,057.1 |   0.0 | 1,057.1 | (42.3)    |    74.0 | 1,088.8 |           0.0
  2044 |     65 | 24 | 1,088.8 |   0.0 | 1,088.8 | (43.6)    |    76.2 | 1,121.4 |           0.0
  2045 |     66 | 25 | 1,121.4 |   0.0 | 1,121.4 | (44.9)    |    78.5 | 1,155.1 |           0.0
  2046 |     67 | 26 | 1,155.1 |   0.0 | 1,155.1 | (46.2)    |    80.9 | 1,189.7 |           0.0
  2047 |     68 | 27 | 1,189.7 |   0.0 | 1,189.7 | (47.6)    |    83.3 | 1,225.4 |           0.0
  2048 |     69 | 28 | 1,225.4 |   0.0 | 1,225.4 | (49.0)    |    85.8 | 1,262.2 |           0.0
       |        |    |         | 235.2 | 1,225.4 | (581.4)   | 1,615.9 | 1,262.2 |              
      

7.5%

Code: Select all

Newguy |        |    |         |       |         |           |         |         |              
Year   | NG Age | No | Op Bal  | Contr | Total   | Draw Down | Growth  | Total   | Tax Free Cash
       |        |    |         |       |         |           |         |         |              
       |        |    |         |       |         |           |         |         |              
  1979 |        |    |         | 16.80 |         |     4.00% |   7.50% |         |        25.00%
  2021 |     42 |  1 |   279.0 |  16.8 |   295.8 |         0 |    21.6 |   317.4 |           0.0
  2022 |     43 |  2 |   317.4 |  16.8 |   334.2 |         0 |    24.5 |   358.7 |           0.0
  2023 |     44 |  3 |   358.7 |  16.8 |   375.5 |         0 |    27.6 |   403.1 |           0.0
  2024 |     45 |  4 |   403.1 |  16.8 |   419.9 |         0 |    30.9 |   450.8 |           0.0
  2025 |     46 |  5 |   450.8 |  16.8 |   467.6 |         0 |    34.5 |   502.1 |           0.0
  2026 |     47 |  6 |   502.1 |  16.8 |   518.9 |         0 |    38.3 |   557.2 |           0.0
  2027 |     48 |  7 |   557.2 |  16.8 |   574.0 |         0 |    42.5 |   616.5 |           0.0
  2028 |     49 |  8 |   616.5 |  16.8 |   633.3 |         0 |    46.9 |   680.2 |           0.0
  2029 |     50 |  9 |   680.2 |  16.8 |   697.0 |         0 |    51.7 |   748.7 |           0.0
  2030 |     51 | 10 |   748.7 |  16.8 |   765.5 |         0 |    56.8 |   822.3 |           0.0
  2031 |     52 | 11 |   822.3 |  16.8 |   839.1 |         0 |    62.4 |   901.5 |           0.0
  2032 |     53 | 12 |   901.5 |  16.8 |   918.3 |         0 |    68.3 |   986.6 |           0.0
  2033 |     54 | 13 |   986.6 |  16.8 | 1,003.4 |         0 |    74.7 | 1,078.1 |           0.0
  2034 |     55 | 14 | 1,078.1 |  16.8 | 1,094.9 |         0 |    81.5 | 1,176.4 |           0.0
  2035 |     56 | 15 | 1,176.4 |   0.0 | 1,176.4 | (47.1)    |    88.2 | 1,217.6 |         304.4
  2036 |     57 | 16 |   913.2 |   0.0 |   913.2 | (36.5)    |    68.5 |   945.1 |           0.0
  2037 |     58 | 17 |   945.1 |   0.0 |   945.1 | (37.8)    |    70.9 |   978.2 |           0.0
  2038 |     59 | 18 |   978.2 |   0.0 |   978.2 | (39.1)    |    73.4 | 1,012.5 |           0.0
  2039 |     60 | 19 | 1,012.5 |   0.0 | 1,012.5 | (40.5)    |    75.9 | 1,047.9 |           0.0
  2040 |     61 | 20 | 1,047.9 |   0.0 | 1,047.9 | (41.9)    |    78.6 | 1,084.6 |           0.0
  2041 |     62 | 21 | 1,084.6 |   0.0 | 1,084.6 | (43.4)    |    81.3 | 1,122.5 |           0.0
  2042 |     63 | 22 | 1,122.5 |   0.0 | 1,122.5 | (44.9)    |    84.2 | 1,161.8 |           0.0
  2043 |     64 | 23 | 1,161.8 |   0.0 | 1,161.8 | (46.5)    |    87.1 | 1,202.5 |           0.0
  2044 |     65 | 24 | 1,202.5 |   0.0 | 1,202.5 | (48.1)    |    90.2 | 1,244.6 |           0.0
  2045 |     66 | 25 | 1,244.6 |   0.0 | 1,244.6 | (49.8)    |    93.3 | 1,288.1 |           0.0
  2046 |     67 | 26 | 1,288.1 |   0.0 | 1,288.1 | (51.5)    |    96.6 | 1,333.2 |           0.0
  2047 |     68 | 27 | 1,333.2 |   0.0 | 1,333.2 | (53.3)    |   100.0 | 1,379.9 |           0.0
  2048 |     69 | 28 | 1,379.9 |   0.0 | 1,379.9 | (55.2)    |   103.5 | 1,428.2 |           0.0
       |        |    |         | 235.2 | 1,379.9 | (635.6)   | 1,854.0 | 1,428.2 |              
      

The spreadsheet will also predict net income and adds state pension at a given age. I haven't complicated by adding those columns. It will work tax out too and there are additional calculations to deal with inflation. It can deal with a couple as well as a single person.

AiY

[James]

Current Position

Pension Pot £279,000
House £300,000
Debt £119,000


Position at 55 (assuming no growth at all)

Pension Pot £279,000
Additional Pension Payments £1400 per month + additional £700 with 40% tax relief - £980 per month. This would be £2380 per month over 13 years which equals £371,280
House £300,000
Debt 0 - pay off mortgage at 55


This would leave me with a pot of about £650K but assuming no growth at all. I'll be honest I'm not entirely sure how to factor in growth at this point.

Take the house out of the calculations. It's an asset you use and can't be used for income so is irrelevant, unless you think you can rent your remaining lifetime housing needs for less than what it is worth.
Go to: http://www.moneychimp.com/calculator/co ... ulator.htm
and plug in some numbers based on what you might expect your pots to earn (you must have some idea from your pension/isa contributions to date). I'd say 4% is very conservative and anything over 7% is overly optimistic. Your mileage may vary.
Personally, I'd pay into my pension whatever was required to get the maximum employer contribution, max my annual ISA contribution, then add anything left over into the pension. Not much point paying down the mortgage now with interest rates so low, other than peace of mind.

[nmdhqbc]

Your ISA is earning 2%...? ( small error but might as well mod it in your sheet)

not sure who you're talking to here. but I don't see any other spreadsheets posted so is it me? If so, no I don't have returns assigned for ISA in the spreadsheet above. L3 and L4 have 2% in but that's nothing to do with an ISA. It's the assumed rate of increase in the state pension and spending.

[AsleepInYorkshire]

Thanks everybody for your comments.
I have had a look at my detail budget and if I scrimp and save I can actually throw another £700 per month to my retirement.

Can I suggest something please. Don't fret this just yet. There's a huge amount of information to digest. This is detail. And the devil is in the detail. But first I would suggest a much broader look at this. This is detail you can look at in time. And you should.

Here's a very simple calculation assuming no growth. I'm not sure how to factor that in.

Current Position
Pension Pot £279,000
House £300,000
Debt £119,000

Position at 55 (assuming no growth at all)
Pension Pot £279,000
Additional Pension Payments £1400 per month + additional £700 with 40% tax relief - £980 per month. This would be £2380 per month over 13 years which equals £371,280
House £300,000
Debt 0 - pay off mortgage at 55

Have you got the amount you are saving into the company pension scheme correct? If you are salary sacrificing then £1,400 is going into your pension pot. Tax & NHC are not taken on salary sacrifice. Or are you contributing £1,400 per month including the company contribution? On a salary of £52K pa you're not really heavily into 40% tax. I haven't checked where the 40% threshold currently sits.

This would leave me with a pot of about £650K but assuming no growth at all. I'll be honest I'm not entirely sure how to factor in growth at this point.

I've added a post with growth factored in - I am convinced it will pique Gengulphus' interest (I hope it does as it need sanity checking )

Questions
1. I'm getting very confused about the salary exchange scheme I am in. My understanding is that everything I throw towards the pension got me 40% relief meaning that £60 was equivalent of £100. Some of you seem to suggest there is a limit and I might not be getting the full 40%.

You are only getting 40% on anything you earn over the 40% tax threshold

2. If the chancellor reduces the limit to say 20% rather than 40% (assuming I'm understanding the salary exchange correctly), it won't be worth putting into the pension plan. It would be better to put into a ISA for the added flexibility

There are many more factors connected to this sort of choice. It's not a black or white option.

If the chancellor does reduce the limit to 20% my additional pension payments over thirteen years would actually reduce by 20% to £297

Not strictly true. The growth of your fund isn't related to the tax you pay on what you earn. At some point in your journey to take control of your future finances you will begin to review where you funds are invested. Not just yet though.

Take small steps and digest this information over time. There's no rush to get it wrong. Get it right first time in your time. You're in the right place to ask questions.

AiY

[Wuffle]

Having parents in their 70's can lead to a casual acceptance that you will too.
Not everybody does. It isn't a high probability outcome but it isn't zero.
So don't do this (and I quote) 'if I scrimp and save'.

Sure, the spreadsheet will tell you the more you put in the richer you will be.....

W.

[Urbandreamer]

1. I'm getting very confused about the salary exchange scheme I am in. My understanding is that everything I throw towards the pension got me 40% relief meaning that £60 was equivalent of £100. Some of you seem to suggest there is a limit and I might not be getting the full 40%.

Ok, let's start with the basics. Every penny sacrificed from your salary goes into the pension*. If you contribute £100, then that is what goes in. Tax is not an issue.
Indeed national insurance is not an issue either.
You are only taxed upon what doesn't go into the pension.

Now if the pension was paid from the salary you received:

That salary would first have national insurance removed.
The part below the basic rate tax band would not be taxed.
The part below the next band would be taxed at 20%. Then 40% etc.
The pension contributions would receive a 20% uplift.
You can claim back the 20% extra tax that you paid. However you can probably only do so on the money that you were taxed at 40%. Which is only part of what you received.

As I understand it, your pension is salary sacrifice or exchange though. which makes things easy.

*Well it might actually be better than that. Your employer pays national insurance on the salary you are paid. Some employers take the saving in national insurance caused by the lower salary and pay that into the pension for you as well.

[fisher]

I am in a similar situation to the OP but I'm much further down the line having retired 8 years ago at 48. I lived off savings for 7 years and then I accessed my SIPP last year.

I have 12 years (between the ages of 55 and 67) where my only taxable income is from SIPP (I have ISAs too). In those 12 years I can use my Personal Allowance to further reduce the effective rate of tax of my Pension Income.

In the OPs scenario he wants to take 30K per year from his SIPP. He can take this from the age of 57 as his only taxable income until the age of 68 (when he becomes eligible for the state pension if I've worked out his year of birth correctly). So that is for 11 years.

30K withdrawn from the SIPP per year. 25% tax free leaves £22,500 subject to tax. Of that £22,500, £12,500 (at today's rate) will be tax free using up his Personal Allowance. So he will then pay 20% tax on the remaining £10,000 which is £2,000. So he is paying £2K in tax on 30K drawdown from his SIPP. An effective tax rate of 6.66%. He can do this for £330K worth of SIPP. Anything left after that will have to also take into account the State Pension he will be receiving at age 68 which will probably use up most of his Personal Allowance.

My point is that the tax relief in a SIPP is very valuable for people wishing to retire early with no other taxable income, even for pension contributions that are not subject to higher rate tax relief. Where there is higher rate tax relief the advantage is obviously even greater. I note the OP already has £246K in a SIPP so perhaps the described tax advantage has already been taken. Subsequent investments to the SIPP still have the advantage of the 25% tax free. There is also a possible downside in the government meddling further with the age he can access his SIPP.

[staffordian]

Most posts here have focussed on the income side of the equation.

I would suggest that a slightly more flexible approach to expenditure might well mean that a less than ideal sized pot will survive.

Many posters here who have retired review the previous years investment income and base the following years expenditure on this (ideally keeping back a percentage to build or maintain a safety margin to draw on in lean years, such as we have just experienced).

In this way, accepting that you will probably have the £30k you want most years, but maybe on occasions you will not, and you'll have to forgo a holiday or two might could be a price worth paying to get the early retirement.

It's rather like the old saying “A good plan today is better than a perfect one tomorrow”

[newguy]

I think I've figured it out. I live in Scotland. A quick look at the tax rates shows that over £43,662 is taxed at 41%, so:-

Salary £51,929 - minus £43,662 means that I'm paying £8,267 at 40%.

If I pay £8,267 into my pension, I effectively get back 40% relief of £3389.47. Anything above this I will only get back 21% back?

Have I finally managed to understand it?

Looking at my last payslip there is a line that says I've done a Salary Scarface at £965 and for this month a total of £1397.74 was paid into my pension.

So does that mean that I should be paying £688 pounds into my pension and moving the rest to an ISA. Is that the sweet spot, simple use the £8267 allowance?