Methodology

The model simulates every year from your current age to your chosen life-expectancy horizon. Each year, balances grow by the assumed rate, contributions are added while you're still working, and — once retired — income is drawn from your pots to hit your target net (after-tax) income.

Withdrawals follow a tax-efficient waterfall:

1. ISA first — completely tax-free.
2. GIA next — Capital Gains Tax on the gains portion of each withdrawal.
3. SIPP last — taxed as income, topped up by your State Pension once it starts.

Because each pot is taxed differently, the engine solves for the gross withdrawal needed to leave you with the right net income after tax — using a bisection search rather than a hand-coded inverse of the progressive tax bands.

Taxable pension withdrawals, 401(k) distributions, Plan de Pensiones rescues, and government pensions/benefits are taxed as income year by year against statutory progressive tax bands.

Unwrapped investment accounts (UK GIA / US Taxable Brokerage) realise capital gains on withdrawals.

• UK CGT — £3,000 annual allowance (2026/27). Gains above it are taxed at 18% (basic band) or 24% (higher band), stacked on top of income.
• US Capital Gains & NIIT — Long-Term Capital Gains brackets (0%, 15%, 20%) apply based on taxable income, plus 3.8% Net Investment Income Tax (NIIT) above MAGI thresholds ($200k Single / $250k Joint).

Under Other investments you can add property. There are no mortgages in the model.

• Rental property — its value grows at your chosen rate, and the rental income is taxed as income(stacked with state benefits and pension drawdowns). Selling a rental property applies capital gains tax on the gain and moves net proceeds to your taxable brokerage account.
• Home you live in— counts as net worth and grows, but isn't drawn for income unless you downsize. Downsizing releases cash into your taxable brokerage with primary residence relief (UK Private Residence Relief / US Section 121 $250k/$500k exclusion).

In addition to investment pots (ISA, SIPP, GIA), Fireworks models guaranteed pension income streams and future lump sum cash infusions:

• Defined Benefit (Final Salary / CARE) Pensions — Guaranteed annual income starting at a designated age (e.g., NHS, Teachers, Civil Service, Armed Forces, or corporate DB schemes). Once reached, annual payments (indexed to CPI inflation) directly offset your target net income, significantly reducing required drawdowns from your liquid investment pots.
• Expected Future Lump Sums — One-off future cash inflows expected at a specific age (such as an inheritance, family gift, business sale, or corporate bonus). At the target age, the lump sum is injected directly into your liquid taxable investment account (GIA), compounding future growth and providing an additional safety cushion.

Retirement accounts have statutory access ages and unique tax rules:

• UK SIPP — Normal Minimum Pension Age is 57 (rising from 55). 25% of withdrawals are tax-free (up to £268,275 cap) via gradual UFPLS or initial lump sum.
• US 401(k) & Traditional IRA — Penalty-free access starts at age 59½. Withdrawals are taxed as ordinary income. Required Minimum Distributions (RMDs) apply starting at age 73/75.
• US Roth IRA & UK ISA — Completely tax-free growth and tax-free withdrawals at any time.

From your state benefit age, guaranteed annual income is added and offsets your pot withdrawals:

• UK State Pension — Default is full new State Pension (£12,547.60/yr for 2026/27). Default claim age is 67.
• US Social Security — Based on average indexed earnings with standard bend points (90% / 32% / 15%). Default claim age is Full Retirement Age (67).

The main projection assumes a steady return every year, which hides sequence-of-returns risk — a run of bad early years hurts far more than the same returns later. The Confidence tab instead runs 2,000 randomised market paths and reports the probability your plan survives.

• Annual returns are drawn from a distribution set by your equity/bond allocation (equity ≈ 7% return / 16% volatility, bonds ≈ 2.5% / 6%, interpolated).
• Three withdrawal strategies are compared: flat (spend the target regardless) and guardrails ±5% / ±10%, which trim spending when markets are down and let it recover toward the target when they're up — flexibility that typically lifts the success rate substantially.
• Simplifications: the invested pots are modelled as one combined portfolio, guaranteed income is treated as net, and pot withdrawals carry a single effective tax rate taken from your deterministic plan. It's a confidence estimate, not a guarantee.

You are Coast FIRE if your current pots, with no further contributions, would still grow enough to fund your target income for life. The planner's Coast mode reports:

• Coast number — the minimum invested today (no contributions) that sustains the plan, found by bisection on the same drawdown engine.
• Surplus / gap — how far your current pots are above or below that number.
• Coast age— the earliest age you could stop contributing and still coast, found by re-running the plan from the balances you'd have reached by each age.

• Pots grow at a flat nominal growth rate per poteach year. Your target income is quoted in today's money and grown by an inflation rate(default 2.5%), so later withdrawals rise; the planner's Today's £ / Future £ toggle switches the projection between the two. The State Pension rises with the same inflation rate (its triple-lock behaviour), while income-tax bands are held at 2026/27 levels, so fiscal drag is captured. The Confidence tab adds randomness (see below).
• Rest-of-UK tax bands only — Scottish rates aren't modelled.
• GIA CGT is simplified (no embedded starting gain; no dividend tax).
• Contributions stop at your retirement age. Optional part-time (Barista FIRE) income can be added — taxable earnings from retirement until an age you choose, offsetting your target so the pots draw down less early on.
• Onboarding asks three things: your annual spending target, your ages, and how you plan to get there (retire fully, coast, or go part-time first). Spending targets use the UK PLSA Retirement Living Standards 2025(single, excluding housing): Minimum £13,400, Moderate £31,700, Comfortable £43,900 — or your own figure, and all editable afterwards. There is no separate “Lean / Fat FIRE” question: those differ only by the spending target you set here.
• 2026/27 tax figures throughout (income tax and CGT thresholds are frozen; State Pension uses the confirmed +4.8% triple-lock rise).
• Single-person plan; no partner or joint modelling.
• All figures are estimates in today's terms and will diverge from reality — treat them as a way to compare scenarios, not predict outcomes.