Bob is a wizard. He does magic. Now if you ask
Bob about this then of course he's going to deny
it. He claims he's a manager at a car production
plant and he says he actually hates magicians
and one came to his table once at his daughter's
wedding and he had to get up and go to the bar.
But he would say that wouldn't he? What I'm going
to show you here today is some of his magic.
Hi I'm Eric and time to retire. Now, if you're
like Bob and earning around £75 ,000 a year in
the UK, well, congratulations, you've done incredibly
well. You are in the top tier of UK earners.
But if you're in the final five to 10 years of
your career, that 75 grand salary is leaking
cash at a terrifying rate. Every single pound
you earn above £50 ,000 is hit by a 40 % income
tax rate plus national insurance. You're grinding
through the most stressful years of your career,
yet nearly half of your hard -earned cash is
top -sliced and vanished before it even reaches
your bank accounts. What if, like Bob, you could
choose to not pay it? What if you could legally,
safely and ethically lower your taxable earnings
from £75 ,000 all the way down to £35 ,000? Keep
that missing £40 ,000 for yourself. and use the
taxman's own rules to double your retirement
pot in record time so today we're looking at
Bob's ultimate pre -retirement strategy it's
called earn less to save more and what I'm going
to do is going to break down how dropping your
taxable footprint from 40 % to 20 % paid during
your retirement years and how salary sacrifice
works and The plan that transforms a heavy tax
bill into financial freedom. Now, before we fix
the leak, we have to understand exactly where
the water is coming from. Now, in the UK, the
first 12 ,500 cents you earn is tax -free. From
there, up to around 50 ,000, you pay a very reasonable
20 % basic rate. But the moment your salary crosses
that £50 ,000 threshold, you enter the danger
zone. Now from this £50 ,000 up to £75 ,000,
you're paying 40 % income tax. On top of that
block of £24 ,700 alone, you lose nearly £10
,000 straight to income tax plus another 2 %
to national insurance. So the total between the
income tax on you and I, across your entire salary,
is sacrificing £21 ,400 a year to the taxman.
This is money you're never going to see again,
completely wiped off your personal balance sheet.
Now, let's have a look at Bob's magic trick.
Instead of taking that top, £40 ,000 as cash,
paying higher rate tax on it and trying to save
what's left. He made a pretty radical choice.
He decided to reduce his taxable earnings down
to £35 ,000 by shifting £40 ,000 directly into
his pension. Under the current UK rules, the
standard annual allowance lets you contribute
up to 60 grand a year into your pension tax free
that's as long as it doesn't exceed your total
relevant earnings so popping 40 grand away is
fully within the rules now you can do this a
couple of ways you can either instruct your employer
to adjust your workplace salary sacrifice scheme
or you can make personal contributions directly
into a self -invested personal pension sip and
then claiming the higher rate relief back on
a self -assessment if needed by doing this she
instantly change your financial identity in the
eyes of HMRC. As far as the tax expense concerns,
you no longer earn 75 grand, you earn 35 grand,
and that completely reshapes your numbers. Now,
workplace pension is generally the option to
go for here, as this will also reduce your NI
contributions and may even see your employer
throwing in some extra cash as well because they'll
be making a saving on their part of the NI tax
bill. But not every employer is this flexible
and they may lock you into a set percentage of
your pay. Now this is where the sitcoms in you
get. the money from your employer into your bank
account after you've paid tax on it. Then you
transfer it from your bank account into your
SIP account. A few weeks later, magically, HMRC
do their bit and pay the tax back into your SIP.
Now, if you paid 20 % on your salary earnings
before it was paid to you, then they top it back
up with a 25 % contribution. now that's not magic
that's just how the maths work for pre and post
tax changes now for the cash you move that you
paid 40 percent tax on then you'll be given your
extra back when you put in your tax return at
the end of the year now if you don't know where
to start with a sip email me on eric at time
to retire .co .uk and i'll send you A simple
to follow instruction on how to set one up. Let's
look at Bob's magic on his scoreboard. When you
leave your salary at £75 ,000, your total tax
and national insurance bill is over £21 ,000.
But when you drop your taxable earnings to £35
,000, your tax bill drops to just £4 ,486. You've
just suspended £16 ,936 from leaking out to the
taxman. Now look at what happens to your cash
flow. Your take -home cash drops from £53 ,000
down to £30 ,500. That's a reduction of £23 ,000
in your pocket today. But look at what you bought
with the £23 ,000 drop. A massive... £40 ,000
sitting safely in your personal retirement pot.
You sacrificed £23 ,000 of immediate spending
and a taxman effectively handed you an extra
£17 ,000 to boost your pension up to £40 ,000.
That is an instant guaranteed 73 % return on
your money. Now when you retire, you're likely
to be taxed on the pension you draw, but for
most people they'll get 25 % completely tax -free
and the rest is likely to only be taxed at 20%.
Now the obvious question you're going to ask
me is how am I supposed to survive on £30 ,000
of take -home cash when I'm used to £53 ,000?
Well the answer is that this phase is your pre
-retirement dry run. Now if you're say five years
away from your retirement, this is the time to
aggressively shed your working costs. Now if
your mortgage is almost paid off or if your children
have finally grown up and left home, your household
outgoings have already fallen quite a bit. You
don't need to sustain a £75 ,000 lifestyle anymore.
By forcing your take -home cash down to £30 ,000
today, You're proving to yourself that your baseline
retirement costs are manageable. You're testing
your retirement budget while you still have the
safety net of a major salary. Now, if it feels
too tight, you can easily tweak the dial next
year and contribute 30 grand instead of 40. But
if it feels comfortable, you've successfully
downshifted your lifestyle early, stress -free.
Now let's look at what this looks like if you
maintain this strategy for just five years before
you retire. By redirecting £40 ,000 a year, you
dump a staggering £200 ,000 into your pension
pot in five years. Because that money is sheltered
inside the tax wrapper, it compounds over those
years without any... capital gains or dividend
tax slowing it down and when you finally choose
to actually cross the finish line and retire
then that extra 200 000 pounds will completely
transform your retirement options it unlocks
that 25 tax -free lump sum we talk about so much
on this channel and also provides a steady safe
income stream That will hopefully last you for
a good proportion of your retirement life. You
didn't do this by working harder. You didn't
do it by taking a second job. You did it by simply
refusing to play the higher rate tax game. Earning
less on PayPal, but supercharging your savings.
The smartest way to prepare for retirement isn't
just saving what's left at the end of the month.
Stopping the tax leak at source, shifting your
income from higher rate bracket into your pension.
It's going to be the ultimate pre -retirement
cheat. Now, I'm no financial advisor. My channel's
here just for education purposes. But if you
do want to know more about how to set up a salary
sacrifice scheme or how to claim back your higher
rate tax relief via self -assessment, Make sure
to subscribe to the channel, leave a comment
below and I'll see you in the next video.