Why does retiring five years early cost so much more than five years of spending?

Because those five years are funded at the full income gap, with no state pension underneath, out of money that would otherwise have kept compounding for the rest of the plan. Each year you bring the retirement age forward costs a year of contributions and a year of withdrawals, plus everything both would have earned by ninety: change it a year at a time and compare the balance left at ninety, or the age the money runs out.

What is the second pillar and should I include it?

It is the pension your employers accrued for you, separate from the state pension and from anything you invest yourself. Include it, using the projected figure from your annual pension statement rather than the amount accrued so far, and check whether that figure is gross or net — a gross number entered against a net desired income will understate the gap by a wide margin.

Why does the curve bend at retirement and again at AOW?

Because the phases change what the portfolio is for. At retirement the contributions stop and your whole income gap starts coming out of it, so the curve bends down; at 67 the draw shrinks to whatever the pensions do not cover, so it bends back up. Within each phase it rises if the growth on the balance covers the draw, and falls if it does not.

Retirement phase planner — the gap before AOW starts

Retiring before the state pension age is not one problem, it is three in sequence, and only the middle one is hard. While you are working the portfolio grows. From the day you stop until AOW begins at 67, it funds your entire income gap on its own. After that the state pension and any work pension take most of the load and the draw falls sharply. The curve on this page shows both changeovers — it bends down when you stop and back up at 67 — and the stretch between them is what makes early retirement expensive, which no single-number calculator shows.

The calculator

How it works

The simulation steps month by month from your current age to ninety, at the root of your expected annual return. In the accumulation phase your contribution is added. From your chosen retirement age it switches to withdrawing your desired income less any work pension. From 67 the state pension is subtracted from the gap as well, which is where the three coloured segments change over. If the balance reaches zero it stays there and the age is reported, because a portfolio that has run out does not recover.

What it assumes

The AOW age is treated as a flat 67 here. That is the statutory age through 2027; it rises to 67 years and three months in 2028 and follows life expectancy after that, so a younger user should expect it to arrive later than this page shows. Nothing is indexed to inflation: a fixed desired income buys less every year of a thirty-year retirement, which flatters the plan. Withdrawals are untaxed and the annual charge on the portfolio is not modelled, and both the work pension and the state pension are held flat in nominal terms.

Common questions

Why does retiring five years early cost so much more than five years of spending?: Because those five years are funded at the full income gap, with no state pension underneath, out of money that would otherwise have kept compounding for the rest of the plan. Each year you bring the retirement age forward costs a year of contributions and a year of withdrawals, plus everything both would have earned by ninety: change it a year at a time and compare the balance left at ninety, or the age the money runs out.
What is the second pillar and should I include it?: It is the pension your employers accrued for you, separate from the state pension and from anything you invest yourself. Include it, using the projected figure from your annual pension statement rather than the amount accrued so far, and check whether that figure is gross or net — a gross number entered against a net desired income will understate the gap by a wide margin.
Why does the curve bend at retirement and again at AOW?: Because the phases change what the portfolio is for. At retirement the contributions stop and your whole income gap starts coming out of it, so the curve bends down; at 67 the draw shrinks to whatever the pensions do not cover, so it bends back up. Within each phase it rises if the growth on the balance covers the draw, and falls if it does not.

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Retirement phase planner — the gap before AOW starts