FIRE vs. Pension

How should you fund Early Retirement?  Save after-tax money now or put it in a pension to be accessed when you are 58+ with tax advantages?  It’s a tough choice and one that I’m struggling with.

We are currently saving as much of my salary into my salary sacrifice workplace pension as possible.  My wife’s employer doesn’t have it, so we only put in the matched 5% in for her.  But it does mean that overall, our pension savings (including LISAs) are outpacing our non-pension investments.  And we’ll need the non-pension investments to FIRE on.  If we don’t do it right, we could end up with a tight FIRE and rich retirement.  Essentially, it’s a balancing act between benefits of Pensions vs. cash in the bank now.

I should write a post about the benefits of salary sacrifice but essentially, it means for every £1  reduction in take home salary I get, I get around £2 in my pension.  It’s a good deal.  I wrote a recent post about LISAs and an defense of why the Lady and I like them (and dislike them at the same time) – but it has brought me along to think about how to fund FIRE.  At the rate we are going, we’ll have our ideal minimum retirement income full funded* soon enough.  If you spend less than you earn, invest wisely, you’ll eventually reach FIRE.  However if you spend too much (as we are at the moment) and put all your money into the pension (as we are at the moment) then you can’t FIRE safely (our FIRE fund is not predicted to increase based on current income/expenditure through to 2022).

Based on rough August 2018 figures:

  • Ideal minimum retirement income: £20,000 (£1,667 per month)
  • Current Final Salary Pension annual value: £11,000
  • SIPPs & LISAs: £225,000 = £9,000/annum on a 4% SWR
  • Total = £20,000 = 100% of what’s required to retire
  • Woo hoo – I’ve done it! Except I am in my 30’s not 50’s and so I need some money in the meantime.

So for an early retirement scenario (before pensions kick in – accessible in 22 – 25 years time).

  • Ideal FIRE-lite income: £24,000 (£2,000 per month)
  • Approximate net worth less pensions (the FIRE fund):  £450,000
  • FIRE income = £18,000 on a 4% SWR which is 75% of the £24,000 required
  • Shortfall = £150,000
  • Approximate annual savings: £36,000 means ~4-5 years until we’re fully funded.

Sounds simple?  Well, to muddy the waters a bit – future financial commitments:

  • LISA = £120,000
  • Mortgage = £150,000
  • Giving a total pre-retirement shortfall = £420,000

That’s the situation we are in.  Pension rich cash poor.  There are some obvious solutions to all of this like: push FIRE back to 2022 (as originally planned), get a pay rise, pay less into the pension, revise down the FIRE spending, use a higher SWR of 5%; or my favourite which is to accept that the numbers don’t fully add up but to FIRE anyway next year.  It could be just for a while before rejoining the world of work, starting a home business/expanding some activities I have already – or my favourite of sending the wife and kids out to work.

In summary, our Pension years look safe already.  The next 20 or so are not guaranteed but I don’t think that having lots of money should make your afraid because you don’t have even more.  Money is an enabler of all sorts and I intend it is to enable FIRE for GFF.  Maybe you all think that I’m letting the Pension dog wag the FIRE tail and I should scale back my Pensions payments now to charge towards FIRE – thoughts are appreciated.



*Note, retirement income doesn’t include the state pension which I don’t want to rely on in the year 2050.

**Increasing SWR from 4% to 5% almost gets rid of the whole problem and puts me into FIRE.  Although I am a bit unsure of how to treat consecutive SWRs on pre/retirement funds – which is covered by ERN and by 7 Circles.


  1. It does seem like you are basically there GFF, if you are prepared to take the risk that sequence of returns won’t hit you. You can always run down the pre pension pot to zero so a 5 or 6 % withdrawal rate is not ridiculous.

    Liked by 1 person

    • is enough every enough? I have a high 5 figure amount of money invested in illiquid shares in a fast growing company. I have the joy of either a high CGT bill (gulp) or not being able to sell / boom to bust. I also don’t have enough in quarterly ETF dividends to make it all plain sailing (unlike my SIPP) – instead I’ve a lot in VCTs, P2P lending and that one share. 🙂 Not the worst situation to be in but needs refinement.


  2. Interesting to read about “LISAs” and what it stands for 🙂

    That’s awesome that your pension is already achieving FIRE-light! Congrats! I have a pension too and when I’m 55 it will pay out roughly $1000 a month until I die. Not bad!!


  3. Great roundup and a stunning amount of cash.

    Have you thought of buying an established website with your spare money and creating a monthly income? With your Pension security net, it seems like a no-brainer.


  4. Pension rich and cash poor sounds about where I am as well! We have saved hard in our retirement funds (US 401k) because of employers who were generous in contributions and because our own personal contributions have lowered our tax hit. It is nice to know we are fully set for age 59.5 and beyond when we can start to draw that down without penalty.

    But currently we are only 47, so we have to get by for the next 12 years. We are cash poor because we have invested all our cash in real estate – which provides some monthly income but not enough to be fully FI, so we have to rely on some side hustles and building other passive income for now. Our plan is to reduce our spending through location geo-arbitrage and selling some real estate if needed.

    Liked by 1 person

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