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I personally would be quite happy with a couple of Tesco till shifts
Mrsdb found it quite difficult to get a "wind down" job, most employers thought she'd get bored and leave, it's something I've thought about too but decided I'd rather do my current job* for less hours than take a large pay cut per hour.
*only average UK salary but quiet easy on me & much better than minimum wage.
A few friends have found the sweet spot with a part time role that pays a decent rate and keeps below the tax allowance, netting around £1k a month to supplement a couple of k from pension/savings, again with no or minimal tax for the first good few years utilising the 25% tax free etc.
I personally would be quite happy with a couple of Tesco till shifts
Mrsdb found it quite difficult to get a "wind down" job, most employers thought she'd get bored and leave, it's something I've thought about too but decided I'd rather do my current job* for less hours than take a large pay cut per hour.
*only average UK salary but quiet easy on me & much better than minimum wage.
I watched my father in law negotiate a nice deal - moved from sales manager of a mushroom seller to inspecting stockists and quality. He was paid 5 days per month to travel the UK (including overnight accommodation) and randomly inspect supermarkets who had their stock, then send simple reports to the new sales manager and team. Was paid £1k a month to do this for 6 years - basically he and my MiL spent the time touring all sorts of random places in the UK at someone else's expense...
Quite a few colleagues are on compressed or even part time hours before they step off into retirement. All depends on your employer and your role.
keeps below the tax allowance, netting around £1k a month to supplement a couple of k from pension/savings, again with no or minimal tax for the first good few years utilising the 25% tax free etc.
This sounds like effective tax avoidance. But it does mean a fairly low income. OK for later years, but something of a change if you were taking home much more before retiring.
If you had a 500k pension pot and 50 or 60k in cash/savings you could have a combined ‘in your hand’ of 4k a month for close to 5 years, possibly getting you to to state pension age. Not necessarily the most tax efficient way to do over say a 20 year pension period though, but would increase available disposable income in the early years.
I seem to be doing ok on the pension front thanks to sticking in good sized contributions from relatively easy in the career. I kinda thought i'd not be able to retire until 60 or whatever, but maybe I can do it at 55 if I don't go mad (30k a year or whatever). I have a chunk in an isa, and it occurred to me the other day I could just burn through that from age 55 to 57 when my pension would kick in - somehow feels wrong as that's my 'savings' and just spending them seems somehow 'incorrect'. Any downside to this?
I guess the main one I can think of is that it means all your savings are then effectively in your pension, which means the double taxation thing when I die (I know it's not actually double taxation as I didn't pay tax on it in the first place - i'm not anti tax!). Anything else? Means testing of the state pension I guess would screw my maths, as would a tax raid on large pension pots which I assume will come sooner rather than later.
But, the 25% you can take tax-free, do you have to do self-assessment for that
Not sure I’ll ever not do self assessment though most times I seem to owe money despite PAYE. My SO has continued to do it every year since retiring and each year has had a refund from HMRC.
keeps below the tax allowance, netting around £1k a month to supplement a couple of k from pension/savings, again with no or minimal tax for the first good few years utilising the 25% tax free etc.
This sounds like effective tax avoidance. But it does mean a fairly low income. OK for later years, but something of a change if you were taking home much more before retiring.
£3k per month take home is about 50% more than national average take home pay, it might be something of a change for those used to more but to call it a fairly low income?.... even if you are talking joint income it should be plenty to live on if retired & mortgaged paid off etc
I turn 43 this year and whilst I have no thoughts on retiring, I'm a little nervous given I only have about £100k in total savings (mostly pensions). Seems I'm in it for the long haul.
I have a chunk in an isa, and it occurred to me the other day I could just burn through that from age 55 to 57 when my pension would kick in - somehow feels wrong as that's my 'savings' and just spending them seems somehow 'incorrect'. Any downside to this?
no real downside, I think it’s a mindset thing, spending it after years of saving to it..
Ultimately, despite all the moaning in the right wing press, the reality is that middle income earners in the UK (whether retired or not) don't pay enough tax to support the services we want. You cant get good services and pensions by just taxing the very rich - the middle needs to pay more (and they do in the European countries many of us visit)
The good news is, if things carry on like this, the middle soon will be! Average wages are now only about 20% below the higher tax threshold.
I just looked up some previous years, out of interest. Adjusted for inflation, in 2019 the top rate kicked in around £65k in today's money, in 2010 it was about £68k, in 2000 it was about £62k, and in 1990 it was about £58k in today's monday. So middle-higher earners are definitely getting taxed more.
Higher rate tax is not something that's concerned any household I've ever lived in, but a few more years and it just might...
all your savings are then effectively in your pension, which means the double taxation thing when I die (I know it's not actually double taxation as I didn't pay tax on it in the first place - i'm not anti tax!).
really all depends on size of pot, you get 25% tax free, so with a large pot and spreading that out over say 10 years, and adding in the 12k a year tax free income, you could keep a decent monthly income with low or no tax.
for the ‘when you die’ bit, and assuming you’re considering inheritance tax, if your estate is under about £1M it won’t really amount to much, and if it’s over that then it’s probably fair enough !
we plan to spend most of the pot, and leave a decent chunk in the house to the next generation, all below IHT Threshold. God willing 🤞
Factoring in the house it might be over a million when I cork it - kinda depends on the market. If it happens to stay favourable then the withdrawal rate will leave most of the principle - reasonably unlikely it'll go down to nothing. As I say no problems paying the tax, but I guess i'd be stupid if I didn't minimise it. Essentially a choice between retiring early and leaving the kids a larger pot that only gets taxed once (as opposed to IHT + the receivers marginal rate).
I turn 43 this year and whilst I have no thoughts on retiring, I'm a little nervous given I only have about £100k in total savings (mostly pensions). Seems I'm in it for the long haul.
£100k is good. Now it's do you have spare to make this a lot better over the next 5/7 years to really see it grow. Have you paid attention to what it's invested in? Consolidated any other pensions. Checked on lifestyling and when it kicks in and if it can be turned off.
A few of these threads last year kicked me into looking at it properly so spent 6 months learning about it, getting all the ducks in a row and playing with spreadsheets to see where we are at and what is needed to be done.
Meaningful Money is superb for guiding what you should do and this is probably the main season to listen too before getting sucked into everything else https://meaningfulmoney.tv/category/podcast/season-25-finance-os/
All assuming most of it doesn't go in care home fees, like MIL's estate. Let's hope for a long 'mobile/healthy' retirement.
That Guardian article really wasn't aimed at most of the people on this thread who are already doing something, even if they think they should be doing more.
It was aimed at people who are doing nothing, the message is you really need to think about this a bit and do something. I've had conversations with people about this stuff over the years who have zero financial literacy. As soon as you talk actual numbers, interest rates etc they just glaze over and become paralysed by indecision/disinterest/fear. Result - they still have no pension. Hopefully auto-enrolment has improved this slightly, but we still had one of our daughters outraged at this deduction from their pay packet and wanted to opt out...
but we still had one of our daughters outraged at this deduction from their pay packet and wanted to opt out...
Employer contributions are free money that will compound nicely from a young age... total no-brainer even if the company scheme isn't very generous!
I think it’s a mindset thing, spending it after years of saving to it..
This, very much this. It's exactly what a pension adviser said to me a couple of years ago when I first started thinking about it. But it's a big change of mindset after ~40 years of saving in various ways & places, and I'm still a way off properly committing to it, despite finishing work in Apr at 62, and having just got all my (4) bits of pensions into actual payment this month. That took a little while to administer, although they did say "It will likely take 10 weeks or so to get these into payment"
I turn 43 this year and whilst I have no thoughts on retiring, I'm a little nervous given I only have about £100k in total savings (mostly pensions). Seems I'm in it for the long haul.
100k compounded at 4% for the next 25 years to retirement at 68 (by then it'll be 68, if not later) will be 270k approx
Add in another 10% pa of an average sort of salary of £32k (your + Eer contribs) would be another 3200 x 25 = 80k and also compound that at 4% over 12.5 years (rough and ready of averaging growth of a sum that starts from zero but increases over period is to compound over half that period) = 130k. Total is 400k in today's money
I'd say you're well on the way, and as salary grows and you can increase the amount you put in, and also hopefully returns-inflation are better than 4% ....you're a damn sight better off than a lot of people.
If nothing else, youngsters, start early and max out the free money from the Eer and taxman.
4% is weak but allows for inflation to be reducing the effective amount....
^^ very much this, and retiring today with a 400k pot would be quite doable for most people, and even before mid/late 60’s.
Yep. Based on my own recent experience, and assuming you're in reasonably good health, it should give you an annuity of about £20k. That depends a bit on whether you take the tax free lumpsum at the start, and a few other variables, but it's reasonably indicative
I'm getting very near to retirement (certainly mentally) and interested in people who have taken lower paid shelf stacking or delivery type jobs to keep some additional income coming in or to keep occupied.
There must be many people on here with a high to very high degree of autonomy in their roles - how do you manage working and being at someone else's beck and call? Quite likely working to some frightful person on a bonus driven mission! Showing my prejudices here.
I'm in the multiple smaller pensions from various employers bracket and needing to change the mindset from saving to spending while these pensions and the state pension phase in.
If you had a 500k pension pot and 50 or 60k in cash/savings you could have a combined ‘in your hand’ of 4k a month for close to 5 years, possibly getting you to to state pension age. Not necessarily the most tax efficient way to do over say a 20 year pension period though, but would increase available disposable income in the early years.
Can you check this/ confirm what the point was as I'm not getting it. Not saying it is wrong, but not seeing where it leads...
4k pcm is £48k PA, so lasts loads more than 5 years, but probably a bit less than 20.
What am I missing?
100k compounded at 4% for the next 25 years to retirement at 68 (by then it'll be 68, if not later) will be 270k approx
I guess that as this is an early retirement thread the message you will need to work to 68 isn't welcome!
What am I missing?
I was trying to demonstrate by example how to get a living income out of the fund without paying more than very minimal tax
I turn 43 this year and whilst I have no thoughts on retiring, I'm a little nervous given I only have about £100k in total savings (mostly pensions). Seems I'm in it for the long haul.
you are better off than I was at 43, I had 65k in my pension. With a tail wind (8% p.a) for the next 7/8 years I hope to have 500k at 60. If not then I will work on. As others said, compound interest/time is your friend.
was trying to demonstrate by example how to get a living income out of the fund without paying more than very minimal tax
Righto. I'll re-read it tomorrow to see if I get it. Not that it matters 🙂 . Cheers for elaborating
No worries, it was just an example
For those who are just starting out with pensions or a fair few years from retirement but want to add as much as they can, if you are in a role which pays a bonus of any sort its well worth checking with the company HR people about salary sacrifice. You can put a bonus directly into your company pension ( I think you can with a SIPP style pension as well but I have no experience in that) thus avoiding paying tax on the bonus now.
I've been fortunate to pay in money for the last 7 years via this method and it has given my pension a needed boost over and above the normal monthly contributions.
If you are higher rate tax payer and go this route you will need to check in annually with HMRC to claim back the tax relief (another nice bonus) this is fairly straightforward via the .Gov website. If you are standard rate this is done via PAYE.
On the early retirement front I recently watched a video about annuities and how they had to change after the government changed individuals access to pensions years ago coupled with auto enrolment in DC schemes. I hadn't really considered them as a flexible option, but they are.
I have a DB pension kicking in at 65 and state at 67, so I toyed with dropping my 2 DC's into an annuity from 55-65 and see what I was offered. I figured I would look for some work 2-3 days a week to keep the brain ticking over as well.
a quick check using a calculator at L&G website and for my £180k pot they offered £15k pa for 10 years, £45k upfront and £18k at end of 10 years. Which has my interest, only 14 months to think about it! Although by then we will probably have had another interest rate cut which usually has an effect on annuity prices.
Annuities seem to get fairly poor reviews, though clearly safe and conservative. I guess the reduced returns vs drawdown is the insurance levy that you are being charged for stock market variation protection.
Annuities seem to get fairly poor reviews, though clearly safe and conservative.
I think they’ve been poor investments in the recent past but rates are better now Worth looking into if you want to increase the “base load” of your pension
How you mean ‘base load’ ?
@white101 are you sure about needing to do anything with HMRC? I salary sacrifice my entire bonus every year and it just gets added to the pension - since it's taken before tax there isn't any tax to claim back is there?
How you mean ‘base load’ ?
I just meant, by analogy with electricity supply, an amount of money that’s coming in regularly and reliably, like state pensions and defined benefit pensions. It can be reassuring if that “base load” is enough to cover normal monthly bills, leaving other investments, DC pensions etc for holidays, home renovation, medical expenses etc. That’s my thinking, anyway 🙂
you sure about needing to do anything with HMRC? I salary sacrifice my entire bonus every year and it just gets added to the pension - since it's taken before tax there isn't
It depends in your employer. Mine does the same as yours ( I presume)... Any extra I put in my pension goes straight in with no tax paid at all.
And they even chuck the Employer's NI on top code they're angels ,:-)
How you mean ‘base load’ ?
Agreed, it's a weird choice of expression. I think guaranteed base would be better. It's not necessarily increasing the level at all, it's just setting it at a known, guaranteed level
i am so glad i didnt read a post like this nearly 5 years ago.
it would of put us off retiring ........ ever.
some of the figures people mention needed to retire are fabulous.
we could only dream of such amounts.
@ewan When I was under the 40% threshold everything regarding tax relief was done at source by my employer. I went £400 over this salary threshold when my company was taken over (given a new contract and pay) and I was informed I have to contact HMRC to claim the tax relief. I'd seen a couple of people on YT talk about this and also when the pension provider finally responded to my request for confirmation they agreed I would need to claim it via HMRC.
With a DC pension your pot is made up of a few different contributions, your personal monthly amount, your employers amount and tax relief, hopefully there is also a growth amount showing since you started it.
Generally all this information should be on show on the pension providers dashboard when you log in, showing you each contribution total.
For clarity its the salary that takes you over the threshold not your bonus payment.
i am so glad i didnt read a post like this nearly 5 years ago.
it would of put us off retiring ........ ever.
some of the figures people mention needed to retire are fabulous.
we could only dream of such amounts.
@ton I know where you are coming from and that’s one of the reasons I’m trying to keep the thread going. Many of us are finding ourselves in a retirement option situation not entirely of our choice and it’s fascinating to hear how folks have made it work outwith the golden £1M, or even half of that, pension pot, at age around 60.
keep them coming.
(I know you guys have done great out of a much lesser amount which is inspiring to read about)
I just wish you could pay extra into your state pension and receive more.
We are now expected to be insurance experts and be able to guess how the markets will fare. We are only a Lord Far Far away from pensionmageddon.
Plus the government would welcome the extra cash.
@zippykona I think you raise an interesting issue there. We all don't actually have a state pension pot to pay into, its based entirely on tax revenues at the time.
So the tax we pay today is funding OAPS now and in the future youngsters (today) will fund us.
Its a bit of a ticking timebomb as there has been a lot more people living far longer than the State pension was designed for and also there is a population issue, not enough being born to pay into that pot in the future.
That Damian Talks Money channel on YT did a pretty good breakdown of the situation in the last week, worth a look.
^^ and I wonder how long till the State Pension age is increased again … 🙄
Not sure if it has been mentioned in this thread but Denmark has just legislated to raise its retirement age to 70 in 2040 from the current level of 67
^^ and I wonder how long till the State Pension age is increased again … 🙄
My eldest is 22, pretty much not expecting any state pension.
I have 7 and a little bit years to go, at the moment….
Boys are 22 and 19 and also not expecting they will ever see such a thing.
I am trying to calculate the annual rate of return of my pension - can any of you clever people help me.
I will use hypothetical figures so please show your workings
£250k invested since 2015 has generated a £500k pot. (500-250)/250 = 1 x 100 = 100%. That looks quite good.
But how do I then calculate that as annual rate of return over the 10 years to see if compares anything like say the 8% quoted in this thread. Do I just divide by 10 so I would have 10% p.a
Thanks
That’s about 7% a year.
10th root of two (ie your money doubled over ten years), converted to a percentage
Thanks both most helpful.
Ah but hang on the £250k wasn't all invested on year 1. Lets say it has been invested at a rate of £25k p.a. for round numbers.
Ah but hang on the £250k wasn't all invested on year 1. Lets say it has been invested at a rate of £25k p.a. for round numbers.
In that case Excel is your friend, but I haven't got it and can't remember the function you need.
(or else just ask ChatGPT a more complicated question)
In that case Excel is your friend, but I haven't got it and can't remember the function you need.
It's about 15%, I think ...
I suspect the state pension will morph into a bigger pay as you earn scheme.
So people who choose to opt out or not work will get next to nothing.
Then there will be a bigger range of government pensions for those who are able to contribute more , work for more years or can buy in at a later date.
The starting age will rise over time to 68 or 70. Then your legible for the both the state and company pensions , the state pension being like earnings related with reward the highest earner who will have also paid more income tax in the previous decades
yes it will be roughly double the original calculation because the money's been invested for half as long on average. Not precisely true but probably close enough.
rule of 72 is useful for doing these sort of things in your head. 1% compounded for 72 years or 2% for 36 years or 18% for 4 years etc....or 7.2% for 10 years, is a doubling. Approximately, good enough for most purposes though.
See also: (1+1/n)^n ~= e for large n
Maths can be useful in real life shocker.
Many of us are finding ourselves in a retirement option situation not entirely of our choice and it’s fascinating to hear how folks have made it work outwith the golden £1M, or even half of that, pension pot, at age around 60.
keep them coming.
(I know you guys have done great out of a much lesser amount which is inspiring to read about)
Ok someone with more knowledge than me needs to check the numbers the nominal values of my pensions are from memory from previous discussions. Remember there is no actual pot of money to access. This is not meant as a humblebrag but indicative of how well you can live on what to many folk would be insufficient money
I have an NHS pension giving me £700pcm. I believe thats worth ( tho there is actually no pot) around £125 000 ( ???) I have a widows pension of about £250 pcm so thats worth a pot of around £50 000 ( ???) I have a small rental flat worth £200 000 ( which is in the process of being sold). I currently make around £600pcm off this. I have a chunk of cash that is the cash out values of Mrs TJs pensions of around £125 000
I am now 64 and despite my travels I have only spent a small % of this pot. In total it would have a nominal value of around £500 000. I also own the flat I live in outright. Council tax is low but insurance is high. I end up with an income of around after council tax and insurance of around £1300pcm. I can live well on that. The cash on hand gives me a huge cushion and peace of mind.
I am intending to move house and will be restructuring my money and will end up probably with no cash reserves, a small interest only mortgage but more assets in housing and the potential to make a lot more in rental income
So for me that pot of £500 000 ish gives me an income that is plenty to live on and also allows me to have taken a number of trips and have plenty in reserve.
I camp tho rather than stay in hotels, I ride a bicycle rather than drive a car. I cut my cloth according to my means
3 years until I get a state pension tho I was contracted out so I believe that means I do not get a full state pension. Once I get that I will be rich in my book tho it will take me into a bracket where I have to pay more tax
I consider myself both very fortunate ( tho how I got here was rather unfortunate) and extremely well off. Of course there is only me to be funded off this
Thanks tj, fascinating reading, and quite uplifting/reassuring.
3 years until I get a state pension tho I was contracted out so I believe that means I do not get a full state pension.
I don't fully understand the contracting out bit. I was contracted out from when it started to when it stopped, but according the the Govt website, I'm still due to get the full state pension. I thought this would be reduced a bit? (Private sector if it makes a difference.)
The contracted out pot was worth over £100k, but I've taken out 25% and the rest on monthly drawdown.
3 years until I get a state pension tho I was contracted out so I believe that means I do not get a full state pension.
You can log into HMRC and check your amount of NI and what you are predicted to get.
+1 with @ton on this one. Amazing how much people are saving and have an aim and expectation for. I am nowhere near that, despite now earning well above average income, and while saving damn hard I will not have anything like the pot so many people have. I also have an ill wife who is (to be brutal) unlikely to make it to state pension age and has been able to drawn down her pension early (age 51) due to ill health - but that means a halving of her income. So our plans for a 'two income' pre and post retirement have changed in the last year. So that is leading to all sorts of plans and thoughts in my head at present.
i am so glad i didnt read a post like this nearly 5 years ago.
it would of put us off retiring ........ ever.
some of the figures people mention needed to retire are fabulous.
we could only dream of such amounts.
All of this ^^
In total it would have a nominal value of around £500 000.
I think you're significantly underestimating. Based on the 4% "rule" you seem to have about £600k equivalent pot, which by any reckoning is pretty substantial.
( Well at least by my reckoning)
Fair enough - perhaps even more. Its a bit tricky because in a private pension there is a pot of actual money whereas with the NHS / LA pensions there is not. the pensions die with me and I cannot exchange them for cash I don't think
I fully accept I am both well off and lucky ( tho some of that "luck" is down to decisions taken)
@ewan When I was under the 40% threshold everything regarding tax relief was done at source by my employer. I went £400 over this salary threshold when my company was taken over (given a new contract and pay) and I was informed I have to contact HMRC to claim the tax relief. I'd seen a couple of people on YT talk about this and also when the pension provider finally responded to my request for confirmation they agreed I would need to claim it via HMRC.
With a DC pension your pot is made up of a few different contributions, your personal monthly amount, your employers amount and tax relief, hopefully there is also a growth amount showing since you started it.
Generally all this information should be on show on the pension providers dashboard when you log in, showing you each contribution total.
For clarity its the salary that takes you over the threshold not your bonus payment.
Yeah, I'm at 40% anyway and im pretty certain it's all done at source. Whether it's bonus or just normal contributions. I will double check tho as that's a lot of money otherwise!
I was contracted out from when it started to when it stopped, but according the the Govt website, I'm still due to get the full state pension.
There are (correction WERE) two state pensions, the basic one and an earnings-related one (SERPS = state earnings-related pension). You were probably contracted out of the latter. I think that's my situation.
SERPS closed down a while back, then there was something else possibly similar (also abandoned I believe), I was abroad at the time and based my financial plans on never having any meaningful pension. Fortunately my wife and I had the salary to manage this ok (well when I say fortunately, it was a significant factor in our decision to work abroad for so long).
that makes sense - ta thecaptain. I am useless with this stuff!
Re pots. If you have a DC pension fund then the pot is the pot. If you have a DB scheme, the pot is worth whatever the pension scheme is says it is worth - so if they applied the 4% rule it would be worth 25 times the pension payment. That is if you can find an adviser who is prepared to do the work (for various reasons they are increasingly unwilling to handle transfers and levels of 40-50x no longer exist). However, if you have a DB pension in payment (as per TJ) for the purposes of Lifetime Allowance calculations HMRC use a flat rate multiplier of 20x. So TJ's own NHS pot is notionally worth 700x12x20 = £168,000. I haven’t a clue whether the widow’s pension is calculated for HMRC purposes - I suspect not because it wasn’t TJ’s pension in the first place - but for this exercise it has a notional value of 250x12x20 = £60,000.
Re tax relief on pensions. In general, when you put £5,000 into the pot the pension fund provider will add in effect £1,000 to the contribution as a reflection of the 20% relief. If you are a higher rate tax payer, when you fill in a self-assessment tax return and inform HMRC of your pension contribution and the relief given so far, by the magic of the tax calculation it will give you a further relief at your higher tax rate. I don’t know quite what reliefs are given where for salary sacrifice schemes but i guess PAYE mechanics may cover it all, but worth declaring to HMRC.
IANIFA
in a private pension there is a pot of actual money whereas with the NHS / LA pensions there is not. the pensions die with me and I cannot exchange them for cash I don't think
I would disagree and say you do have a pot. My ‘pot’ is in stocks/shares, some use the ‘pot’ to buy an endowment that dies with them, your ‘pot’ is your flat and cash on hand.
Oh yes that is true - but my NHS pension and LA widows pension do not have an actual pot of cash - just a nominal value
Anyway - my explanation of what I have was meant merely as an illustration of how its possible to have a good retirement on much smaller sums than financial advisors and some folk think
In general, when you put £5,000 into the pot the pension fund provider will add in effect £1,000 to the contribution as a reflection of the 20% relief
I think you might need to correct your arithmetic....
Doh, £1,250 added.
Salary sacrifice, money is taken out before tax so relief is immediate and full. There's no amount to claim back after. Dumb example but say threshold for higher rate is 50k, you get gross 60k, and want to put 5k into pension (cos maths easier)
If taken after tax your 10k was down to 6k, you put 4k in pensco adds 1k and you claim 1k extra in relief that taxman gives back to you (not into the pot) You have 2k plus the 1k the taxman gave you =3k of your own money and 5k in the pension to show for your 10k of earnings
Salary sacrifice....put 5k in (because thats what you want to contribute in total) and pay 40% tax on the 5k left and you end up with 3k of your own, as above.
Be lovely if taxman gave you even more.. .so if I'm wrong say so as I'm due a big windfall!!!
Salary sacrifice, money is taken out before tax so relief is immediate and full. There's no amount to claim back after. Dumb example but say threshold for higher rate is 50k, you get gross 60k, and want to put 5k into pension (cos maths easier)
If taken after tax your 10k was down to 6k, you put 4k in pensco adds 1k and you claim 1k extra in relief that taxman gives back to you (not into the pot) You have 2k plus the 1k the taxman gave you =3k of your own money and 5k in the pension to show for your 10k of earnings
Salary sacrifice....put 5k in (because thats what you want to contribute in total) and pay 40% tax on the 5k left and you end up with 3k of your own, as above.
Be lovely if taxman gave you even more.. .so if I'm wrong say so as I'm due a big windfall!!!
Looking at some numbers for me.
Without being too specific but I find myself in a very fortunate situation where saving into various ppps over 40 years have accrued to approx £300k.
There is rental income from a b2l as well.
Now , because I'm not good at maths , but I'm good at living frugally., if I take £10k pa from my ppp and leave me remains invested across 6 vanguard ETFs how long would it last assuming a 3% flat rate of return.
This amount , plus say £10k rental income , plus if I can find a suitable part time job at say £10k for simplicity would give me a £30k income. Which is pretty much more than I've ever earned.
And last till state pension kicks in , and then some time longer. I'm 56 now and a very happy victim of compounding. Having started at £50 pcm at 17
As you've stated it, to all intents and purposes for ever. Calc below not exact but you'll get the gist, aiming to help understanding as opposed to just give an answer.
300k at 3% pa gives you 9k in interest/growth. You take out 10k. End of year one you have 299k, your total amount has dropped by 1k
Y2 the same, except your interest is 'only' 299 x 0.03 = £8970, £30 less than Y1. So now your overall amount has dropped by £1030, and you now have 297970, not quite 298k but close enough to make no real odds.
Y3 you're down another £30 in interest (near enough) so 60 in total. It's actually slightly more because you also lost interest in the £30 you were down by but compared to the sums, not really relevant.
In essence each year that passes you have eaten into your capital by about £1000*, it'll last longer than you.
Another way - if you took out £10k a year and got no interest, it'd last 30 years.
* not true actually because you get the miracle of compound interest in reverse. So to be truthful I put your numbers into a spreadsheet and the true answer is 78 years. Or until you're 134 if you did it today.
ALSO - your model is flawed because £10k a year seems good now but in the future won't buy you as much - if inflation continues as it is, £10k in 20 years time might enable you to supersize your frappucino if you're lucky. But maybe your model is cunningly double flawed - because 3% pa is pitiful so maybe you've used that as a sort of offset - ie grows by 3% more than inflation rather than calc its effect on both sides.
Either way, TLDR..... "how long would it last" - longer than you, in all probability.
L* Autre J has nailed it. TLDR; the generally accepted figure is that you can take 4% initially from a pot, increasing by inflation each year and it'll last you out.
For those who want to explore withdrawal strategies which allow for inflation and also the problems of sequencing risk (where a fall in markets happens early on and you either have to rejig your income or your assets run out quicker than planned) I would recommend “Beyond the 4% Rule” by Abraham Okusanya.
In my head I'm relying on the other sauces of income. Wages / rent/ state pension going up inline with inflation , and my necessary income decreasing over time .
Plus I have no dependants or anyone else to leave money to.
So at say 68 I aim to sell the rental property and invest the remaining money in coke , Viagra and hookers .
Then at 78 sell my flat and aim to spend that amount over 10 years and die penniless at 88 .
@singletrackmind Which have a rough drawdown calculator that might give you some indication
I camp tho rather than stay in hotels, I ride a bicycle rather than drive a car. I cut my cloth according to my means
Precisely this...and quite likely the reason so many people of all ages and incomes struggle in the Uk
There is definitely a case for expectation management, your own and your family if applicable..
This thread genuinely changed my life.
Back in October 2021, I found myself trapped in reverse quarantine—everyone in the house had COVID, and I was about to go in for knee surgery. So, I lived in the loft for a week or so while they all isolated. It was a pretty boring time, and I ended up spending a lot of it on here, including reading through the early pages of this thread.
It prompted me to sort out our pensions—mine and my wife's. Right then and there. With a combination of good luck and a few sacrifices, we've been able to substantially grow our pension pots. We've always been good savers when the kids finished nursery which peaked at over 2k and month, we didn't suddenly start going on big hols, buying flash cars or bikes. I drive an 8-year-old i10, I get nothing from cars, so it's not a big deal to me.
As things stand now, it looks like i'll be able to retire at 54—just three years from now—after my wife hits 55 in August 2027. That’s two years earlier than I ever thought possible a few years ago, and a full seven years earlier than I was planning back in 2021.
What’s interesting is how many of my colleagues can’t understand why I’d want to retire so young. I love my job—I really do. I’ve got loads of energy for it, it’s demanding but rewarding, and my team and I work on some of the most important projects for one of the biggest companies in Europe.
But I also know that if I keep working, I’ll just be building up wealth I don’t need and increasing my kids’ inheritance. You can’t buy back healthy years to do the things you wish you’d done. And I’ve got so much I still want to do—things that work just gets in the way of.
I consider myself lucky that my self-worth isn’t tied up in my job, which I think will make walking away a lot easier than it has been for some of my friends. I’ve seen people struggle with retirement or late redundancy, or carry on as consultants just to feel relevant, despite not needing the money.
This year, at 51, I learned to ski—so I can finally do it with my wife, who loves it. She’s just gotten into gravel biking, so we can share that too. I’ve got a YouTube channel I never have time to edit footage for. No one watches it—I’ve never told anyone it exists.
I’ve got synths I had to put away because I’ve never had the time to learn them properly. I’m itching to get back into birdwatching—I've got all the gear, just not the time. I’ve got some beautiful bikes I hardly get to ride—especially my Ti Broken Road Pinion, which I bought for adventures, but this year I’ve only managed one evening out on it.
And it’s not because I’m a workaholic—far from it. I’ve got a great work-life balance. I ride 4–5 times a week, go to the gym 4–5 times a week, and spend a lot of time with family and friends. But I just want those extra 40 hours a week—to do everything else. To finally tackle the house and garden jobs that never seem to get done.
Anyway, thanks to Singletrack i should be free by 2028.