“What’s the quickest way to retire early with a £1million pension pot?”

Mr Delgado said he was aiming for an annual income of between £30,000 and £60,000 in retirement.

In November 2020, Mr Delgado bought a £416,000 house with a three-year fixed rate mortgage at 1.89pc, which expires next year. His monthly payments are currently £745. He has two tenants who moved in in 2021, bringing in a total of £1,400 a month in rent. This is on top of his annual salary of £73,000.

His combined income is just under £100,000. If he is promoted to a higher salary, he will start losing his personal allowance. He wants to know if he should wait until he has a higher salary before starting to increase his pension contributions, because then he will face a higher tax burden.

He said: ‘I have £40,000 a year which I could put into a pension. I don’t have dependents and I don’t have a very expensive lifestyle. I could save that much, but I don’t know if I should.

Mr. Delgado added that he would be interested in alternative real estate investments. He has £164,000 left to repay on his mortgage.

Ian Cook, Certified Financial Planner at Quilter

There are several ways to achieve Mr. Delgado’s goal of retiring at 57. Rather than focusing on growing his retirement assets to £1m, I would like to focus on his desired income in retirement and later in life. We will assume that he will be entitled to the full state pension.

He wants an income of between £30,000 and £60,000 in retirement, which is a pretty wide range. I would definitely advise taking advantage of current tax-advantaged savings schemes such as pensions and its existing Lifetime Isa.

Even if large pension payments draw him towards basic tax, he will save 12% on his National Insurance contributions, bringing the total relief to 32%. The Isa for life will receive a bonus of 25 pc each year until the age of 50, when contributions will cease.

Mr Delgado said he has a significant ability to save up to the current annual retirement allowance of £40,000, in addition to saving in his Lifetime Isa. Using a 5% growth rate on his returns and factoring in inflation at an average of 2.5%, he would have a pot valued at just over £1.1m in terms that would easily allow him to draw a range of retirement incomes. .

Under current legislation the pensions lifetime allowance is set at £1,073,100 and the lifetime Isa is outside of this meaning it can be taken tax free in addition pension income.

Using the investment and savings assumptions, he could derive an after-tax income of around £52,000 from age 57, which would comfortably last into age 90, beyond his current life expectancy. 85 years old.

I would recommend that he reduce the number of retirement pots he has. Ideally, he would have a pension with his current employer and possibly another. It currently has a range of investment funds with no clear direction or strategy and that worries me.

Combining his retirement pools will reduce administration in the long run and make it easier for him to plan his strategy and performance.

Getting the money in the pot early is always beneficial to allow Mr. Delgado to “get rich slow” using the power of compound growth. Potential issues to consider may include changes in legislation or lifestyle with his current tenants, as well as his family situation may change, so I would always recommend saving as hard as possible during these first few years. It’s best to accumulate early and then have the flexibility to choose a retirement date before age 57 or limit contributions if necessary.

Doug Brodie, CEO and Certified Financial Planner at Chancery Lane

Paying off the mortgage only saves Mr. Delgado the interest cost and that is underwritten by his tenants, so it is not currently a priority. There’s no point in trying to guess future interest rates – if he’s feeling conservative, just lock in the rate longer.

Lifetime Isas can be paid out until the age of 50 and enjoy effective tax relief of 25%, limited to £4,000 per annum, and can be held alongside an ordinary Isa and do not not part of the lifetime allowance. Given that the cap on me allowance has fluctuated between £1.8m and £1m over the last ten years, Mr Delgado has to be pragmatic and wait to find out what will happen in the future.

Planning for retirement income 25 years from now is a simple function of one’s annual income, bonuses, investment returns and the number of years to compound those returns. Historical statistics are not guaranteed but are more accurate than crystal balls, so I would assume 7% salary growth, 7% net return on investment, and 25 years duration.

The good news is that I expect maintaining his current pensions will produce £1.25million at age 57 and a £60,000 pension represents a manageable drawdown rate of 4.8%.

The bad news is that when he turns 57 his salary could be around £400,000, so £60,000 will only be 15% of his previous salary – he may need a pension more important to cope with his lifestyle at the time.

His current projected pot value is £1.25m. If he delays his retirement by a year at 58, the pension pot is expected to reach £1.33million. If he still retires at 57 but increases his current contributions by 9% to 10%, my predictions suggest his pension could rise to £1.45million.

Mr. Delgado absolutely needs to consolidate all his retirement pots, mainly to have a single and rational investment strategy; the fund allocations in some of his workplace plans are – to be blunt – atrocious. He must think of investing in his retirement as ‘buying sterling notes’, so for £1 of income at 57, what is the cost today?

Only two shares in the investment fund F&C (priced at £9.63 each) are needed to pay Mr Delgado a £1 dividend when he turns 57, if the current rate of dividend growth is maintained. It’s never guaranteed, but this trust hasn’t missed a payment in 154 years.

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