The calculator's primary strategy is to minimize total tax paid over the lifetime of the forecast.
It does this by using the taxable parts first and sharing the amounts taken between the 2 persons whilst not exceeding their tax bands.
Also by using up any crystalised amount first.
The calculator models a specific way of taking money from your UK pension (SIPP) and coordinates it with your other savings (ISA) to be as tax-efficient as possible.
Here is a detailed breakdown of the tax-efficiency hierarchy it follows each year:
Uses Taxable Crystallised Funds First: If there is any money already in the "crystallised" (taxable drawdown) pots from a previous withdrawal, the calculator will use that money first before taking any new funds from the main uncrystallised pots. This is efficient because it avoids creating a new 25% tax-free cash portion when you already have taxable money available, thus preserving the tax-free potential of the uncrystallised pot for as long as possible.
Intelligently Allocates Between Partners: A critical part of tax-saving logic. When the calculator needs to draw new taxable income from the main SIPP pots, it doesn't just split it 50/50. Instead, it checks the marginal tax rate for each person.
It calculates whose income is currently furthest away from the next tax threshold (i.e., who has more "room" left in their current tax band).
It will then draw the next pound of taxable income from the SIPP of the person with the lower marginal tax rate.
This strategy prevents one person from being pushed into the 40% higher rate tax band while the other person still has plenty of their 20% basic rate band unused, which lowers the couple's combined tax bill.
Preserves ISAs as a Last Resort: The calculator is programmed to protect your tax-free ISA savings. It will only ever draw money from the ISA pots under two conditions:
You have explicitly told it to by setting a voluntary "ISA Contribution". Using ISAs to supplement income in the early years does reduce your tax bill in those years but shift a greater tax burden to the end, making use of ISAs first a long term losing strategy.
Preserving ISAs preserves the tax-free growth of your ISAs for as long as possible.
About the DB pension:
A Defined Benefit (DB) pension is a bit different from your other pots, and it is not seen on the "Pots Over Time" graph.
Here’s why:
The Pots Over Time graph shows your capital balances, the lump sums of money in your SIPP and ISA that will eventually run out as you spend them.
Your DB Pension isn't a pot of money you own. It doesn't have a "pot value" that goes up or down. It's a guaranteed income stream from your pension provider (typically the government) that pays you a set amount each year usually for the rest of your life, much like the State Pension. You will need to check the full details of your policy.
The effect it has in this calculator and in your life is that it allows less to be taken from your DC pension making those pots last longer.
The "Pots Over Time" graph shows your lump sums of money in your SIPP and ISA that will eventually run out as you spend them.
Your Defined Benefit is correctly shown on the Annual Income Breakdown chart, where you can see how much it contributes to your income each year.
How does it work?
You set the scene: Using the sliders on the left, you input all your details—your current age, the size of your SIPP and ISA pots, your desired annual income after tax, and your assumptions for investment growth and inflation.
The calculator does the maths: For each year of your retirement, it performs a complex calculation to figure out the most efficient way to generate your exact target income. It automatically includes your State Pension when you reach that age.
It hits your target precisely: The calculator works backward to figure out the exact amount of money to withdraw from your pension so that your final net income after tax matches your target.
This gives you a realistic forecast of what you need to take each year.
The graphs and the data table on the right instantly update to show you the forecast.
The "Pots Over Time" graph shows the combined total of your savings. It also breaks down your SIPP into its uncrystallised and crystallised parts, so you can see exactly how your pension is being used.
The "Annual Income" graph and the data table give you a year-by-year breakdown of your finances.
Disclaimer:
The calculator is for illustrative purposes only and not a projection of what an
investment may be worth. The projections are based on the assumptions and the
inputs you make, used in the calculations. Projections do not reflect or guarantee
financial market performance or any fees and charges associated with an
investment. This information does not constitute personal advice or a
recommendation. Remember the value of investments can fall as well as rise so you
could get back less than you invest. You are responsible for your money and it is your choice on whether to seek
professional advice on investment decisions you may wish to make.