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Financially independent in 10 years: a plan

The plan is to be financially independent in a decade. I can see now that it can be done. And I can see how it will be done.

The thought of it is making me tingle. This will be the biggest and most rewarding challenge of my life.

In my case, becoming financially independent (FI) requires all the things the gurus said:

  • A moderate annual expenditure: £20,000 for the two of us.
  • A final ‘retirement’ pot that can sustain a 3% withdrawal rate (the standard 4% is too risky in my view, for many reasons).
  • A decent spurt of growth from my portfolio over the next decade: A 4% real return a year will do it.

The growth rate is out of my control, so let’s not worry about it here. The final pot is negotiable, which leaves the savings rate and annual expenditure target as the twin keystones of the plan.

Hitting a 67% savings rate without pauperising ourselves means the near removal of Ms Accumulator and I from the tax system.

Why I want financial independence

Tax ghosts

Part one of going off the tax grid is to stick to that £20,000 annual income figure.

From next year, the income tax-free personal allowance is £10,000 each, updated annually in line with inflation.

Split between the two of us that means our entire year’s worth of spending ducks the taxman’s net. £1 of spending over that line actually costs us £1.25 – once you deduct 20% income tax.

Going tax dark part two means stuffing every spare penny we have into our pensions.

Famously, pension savings are taxed at your marginal income tax rate when you withdraw. In other words, if we each spend £10,000 a year from our pensions (in today’s terms) then we will pay 0% tax.

But the beauty is that every penny we save attracts 20% tax relief at the basic rate and 40% at the higher earner’s rate.1

That means every £1 saved is actually worth £1.25, or even £1.67 at the higher rate.

Which means that £10,000 saved is actually worth £12,500 or £16,700 and is returned to us un-gouged by HMRC, if we live within our personal allowances.2

I can’t emphasise this enough. We get an instant return of 20% or 40% from saving into our pensions (not including company matches) and, if we’re careful, it’s never taken back because we’ve danced clear of income tax.

An ISA can’t compete with that

It should take us 10 years to hit financial independence (FI) using company pension schemes and SIPPS. It would take over 13 years if we maxed out our ISAs instead.

If I was trying to hit FI in my 30s or 40s then, yes I’d be all over my ISAs. But that boat has sailed for me.

We’re in our early 40s, so we’ll be within sniffing distance of our pensions by the time the 10 years are up.

If progress is slower than I hope, then we could easily be 55 – the age at which you can begin to make withdrawals from a pension – by the time we hit our FI bullseye. In that scenario there won’t be any hanging around.

Sure, if things go spectacularly well, and I hit my numbers early, then I could be like a pirate becalmed off treasure island – so close to his booty but unable to touch it.

I’m fine with that. I intend to work on for a couple of years anyway to build up a juicy tax-free lump sum. This will be slipped into ISAs to create an emergency fund / extra tax-free income generator / travel-the-world slush fund, depending on the mood at the time.

Final thoughts

It took being able to smash my mortgage before I was able to think clearly about FI. (If you can cope with two things at once then you won’t have this problem…)

You can add even more tax relief gas if your company pension scheme supports salary sacrifice. That will spare you another 12% in National Insurance Contributions (or 2% for higher raters).

At some point in these discussions, somebody will always say:

“The Government can change the pension rules, spanner your personal allowances, or even confiscate your pension.”

To which I say: Yes, you’re right to point out the risks.3

That risk is one of many I’m taking to achieve something big in my life. I’m also entrusting my wealth to assets scarier than cash, believing I have a long and happy life ahead of me, counting on the UK not to suddenly turn into Argentina, and so on.

By all means be aware of the risks, but don’t be paralysed by them. Play the game in front of you.

There’s a good chance that any adverse pension rule changes:

  • Will happen early enough for me to change course.
  • Will happen late enough that I’ll be exempt.
  • Won’t happen as foretold.

My chances of being left high and dry are small.

When all is said and done, the key is being able to live happily on £20,000 or less.

My prescription: Fall in love, maximise your tax allowances!

Take it steady,

The Accumulator

  1. I’m not too worried about the 45% rate. Are you? []
  2. i.e. Save no more than our annual salary into a pension scheme, or our pension annual / lifetime allowance, and withdraw no more than our personal allowance in any given year of retirement. []
  3. Only last week Ed Balls gave notice of his intention to end 40% tax relief on pensions if Labour are elected. Though most will be better off if reports of a new 30% flat rate relief for all are to be believed. []

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{ 62 comments… add one }
  • 51 Phil October 13, 2013, 6:44 pm

    Hi all,

    Very interesting postings. Just wanted to raise a different perspective which is how best to shelter accumulated pension/assets from the tax man in retirement.

    Has anyone considered emigrating to tax friendly countries, eg Belize, Cyprus, etc, to enjoy higher pension receipts than the £20k pa without a tax loss.

    It’s one thing to get to FI but it would also be nice to enjoy the benefits of the years of saving without having to mange the tax take when in retirement.

  • 52 oll May 5, 2014, 8:29 pm

    A 4% withdraw rate and a 20K per year target will need a pot of around £500,000. Assuming someone was starting form scratch they would need to be saving around £3,500 every single month and get an average return on that money.

    Half of UK workers earn 25K per year or less – 2K per month.. doing this in ten years will not be possible for most. If these save £500 every month they might hit the 500K pot after 35-40 years.

  • 53 The Accumulator May 7, 2014, 9:25 pm

    You’re right oll. It’s not for most people. Many who earn a much greater amount won’t be able to do it because they want a greater income or aren’t prepared to save enough. Sadly, many won’t be able to put enough away because finances are too tight.

    Remember though that’s £20K for two. And Jacob shows on Early Retirement Extreme how to live on much less. He was so determined he chose to live in a trailer park.

    It doesn’t have to be done in 10 years either. We’re saving 70% of income now which puts us bang on course but I wouldn’t blame anyone for taking things more slowly.

  • 54 Finance Zombie April 14, 2015, 4:01 pm

    An inspiring read.

    Nearly a year on, hope it’s all going to plan!

    While saving are you living off the £20k a year? Ms Z and I are aiming for a similar time frame and a similar amount and I think we are living off around that at the moment, which is positive and to be honest we don’t feel like paupers! I say ‘I think’ as I haven’t actually checked properly what our current expense rate is… a task for the weekend I think. But it’s not far off.

    Mr Z

  • 55 The Accumulator April 18, 2015, 12:32 pm

    Hi Mr Z,

    Good on you. We don’t feel like we’re living like paupers either. In fact, it gets easier and easier in terms of mental satisfaction. That said, here’s my numbers in the raw:

    2013 – 14 = £21K spent

    2014 – 15 = £28K

    A big and disappointing jump in a year that was mostly accounted for by capital spending on a boiler replacement and some external works to the house. The only real lifestyle inflation was a food bill that went up 20% after Mrs A and I adopted the paleo diet.

    Big on my to do list is the need to more accurately model capital spending over the long term to make sure this doesn’t blow my income assumptions out of the water.

    My basic plan is that a reserve fund would take care of major works while I think we could live off more like 17K a year once FI (no work costs etc). I want the flex to 20K to allow for the unforeseen and the desire to travel more, potential health costs as we age…

    A bit of part-time work for a few years (say a day or two a week each) would also take considerable pressure off the FU Fund (um, I mean FI) especially during the early years when we’re vulnerable to sequence of return risk. I think a bit of part-time work for a while could be a positive way to wind down from my full-time life rather than an abrupt gear crunch.

    Eventually the State Pension will kick in and give us more buffer too.

  • 56 Mr Zombie April 18, 2015, 2:59 pm

    Thanks for the update.

    That’s not too far off then.

    I had a look at my expenses and its running at about £11.2k for each of us, so just over £22k combined isn’t too bad. Admittedly we did go skiing in February and that was paid for ages ago and so wasn’t included in my calculations, but it’s not far off.

    I hear you on the housing costs, we are going to need some roof work done this summer, which will cost a fair bit. That said, I am going to try and aim for around £10,600 expense rate going forwards and if capital expenditure does take me over that then it would during FI anyway, so best be included in the numbers, right. This article has given me the kick to start the experiment.

    I agree completely with your point about not pulling the plug suddenly, could leave you pretty lost for a bit. And I would probably carry on working in some capacity, perhaps in the same job but part time but more likely on something completely new. Say…carpentry. From Excel to carpentry, can’t be too hard.

    Thanks for the reply,

    Mr Z

  • 57 Luke April 21, 2015, 1:53 pm

    A reserve fund is probably a very good idea. We started to properly allocate for household maintenance and improvement about a year ago, 1.5% of the property value annually. Unfortunately the best laid plans are going awry already thanks to the requirement for major electrical works…

  • 58 Ian April 23, 2015, 6:37 am

    Great to see guys.
    For me I can’t live off as little as you, two teenage kids and a wife don’t quite allow that but I totally follow your approach and goals.
    I think the key messages that I too have been doing is:-
    – you can live off much less than you think and you (and in my case my family) soon get used to it and remain at least as happy as before
    – saving through tax and NI efficient pension really supercharges your saving plan. I now get to the point that I see the tax a bit like an interest rate on my earnings. Please don’t think I’m anti tax, just I see it as money I could have saved/invested … or a missed opportunity.
    – it is just amazing how it soon rolls up and I’m now looking at something that seems very realistic.
    For me the whole experience has been really enjoyable and is all about having the freedom of choice to kick back when and how I want to and in general living off less (not like a pauper) has not been negative at all.
    Thank you for the great web site and my advice to anyone who wants to give this a go is go for as you enjoy life not as a way of delaying life!

  • 59 The Accumulator April 25, 2015, 8:27 pm

    Cheers, Ian. I think that’s spot on. Lots of people take fright at the thought of ‘giving things up’. But it’s freedom that’s on offer in exchange. I wish more people would just give it a try. They can always turn back if it’s not for them. But once you realise that self-worth is not tied to consumption (and in fact the opposite is often true) it’s the new found sense of freedom that’s hard to give up.

  • 60 Fremantle June 5, 2018, 1:21 pm


    I realise it is a way off, but would be great to get a halfway point update and see how you’re going, lessons learned, things you’d do differently/the same.

  • 61 The Accumulator June 17, 2018, 11:54 am

    Hey Fremantle, thank you for the thought – I appreciate it! I am planning an update, especially as I was pretty low at the quarter-way milestone. Things have changed, although at this stage for the better. Financially I’m ahead of schedule and morale rises every passing year. I’ve also changed my starting assumptions given what I’ve learned since about handling deaccumulation. Once Monevator: The Book is done, I’m hoping to post more regularly and share what I’ve learned. Ultimately, I want Monevator to be as helpful on deaccumulation as it is on accumulation.

  • 62 Christopher Frankling July 27, 2019, 7:30 pm

    Probably very late to the game, but for those of us with student loans, at least under plan 2 who are repaying, salary sacrifice effectively is an extra 9% ‘saved’ on top. I’m firmly of the view that I’d rather what would go to the Student Loans Company come back to me with bells attached a few decades down the line…

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