SIPP and Retirement Strategy

Bravepants

kidmugsy wrote: »

Buying gilts in ISAs is dead easy in my experience. Why would it be complicated in a SIPP?



What on earth does that matter if the interest you've earned more than compensates for the capital loss?

Feartiepants!

Ha!




As I understand the way gilts work, and please feel free to correct me if I'm wrong (more often than not!), an example, HL lists this:


Treasury 1.875% Index-Linked 2022
GBP | GB00B1Z5HQ14 | B1Z5HQ1 1.875 22 November 2022 118.170

So for one year's worth of drawdown (£15800) I buy 133.7 gilts at £118.17.


At 1.875% interest I will earn £296.25 per year for 4 years; that's £1185.


Then in 2022 I redeem the 133.7 gilts and get £13370, add the £1185 and end up with £14555. A loss of £1300!


Not every gilt I buy will end up with profit right?

kidmugsy

Bravepants wrote: »

A loss of £1300!
Not every gilt I buy will end up with profit right?

Not if you insist on buying index-linked gilts which offer a negative real return and conceivably therefore a negative nominal return.

If you buy fixed-interested Gilts listed as paying a positive nominal Gross Redemption Yield you will make a profit. (Unless the provider's fees are bigger than the hoped-for profit.)

Open this link, look at the first chart (it shows yield curves) and/or click through on the tab "Table". You are at perfect liberty to decide that the yields are trifling and not worth the bother, but they are at least positive. And they offer the possibility that if in some sort of financial emergency gilt yields drop even lower, you would have the chance to turn a profit by selling them rather than holding to maturity.
https://markets.ft.com/data/bonds

Another possibility is to hunt out a SIPP that pays non-trivial interest on cash and transfer to it.

Bravepants

OK,


Thank you everyone for your thoughts on this thread. I have spent most of today thinking about what I will do and, having taken all your comments into account, I have decided to sell my fund and hold as cash. My reasoning is as follows:


1. This pot is THE KEY to my retiring at 55. Holding an integer number of years' worth of tax free (+25%) drawdown will carry me to age 60 where I can start drawing a DB pension for an equivalent amount per annum. Most crashes recover after 2 years, so they say, but if I suffer a crash at age 53 or 54 then I will be forced into One More Year (OMY). One More Year syndrome is a common malody affecting early retirees anyway, and I don't want to be forced into it.


2. This pot started out as an AVC, which has been funded from the money I would have lost due to being in the 40% tax bracket. It has grown well and I have benefitted from the tax relief already.

3. The loss due to inflation risk is a lower priority to me than the risk of losing, possibly 25%, in a downturn.

4. I have an ISA with a 70/30 equity/bond asset mix, which I intend to continue pumping £1000 a month into until retirement, switching down to 60/40 upon retirement.

5. I will take into account changes in Tax Allowance upto age 55, and a projection 5 years beyond, thus adding cash over the next 5 years to compensate for this. In light of this I will benefit from the tax relief.

6. In the meantime I will continue to save 40% tax by buying added pension in the DB scheme I intend to take early at age 55.

7. In cash form it will be one less fund I need to worry about apart from cash top-ups based on Tax Allowance changes.

8. I'm not sure about gilts, it is something I do not fully understand at this stage. But I may have the confidence to invest in those at a later date as I learn more about investing. However, I won't be investing my SIPP in gilts.

All in all I think the benefits of converting to cash outweigh continuing in an investment that may fall at some point (and I fully understand that it may not).

I shall spend the rest of the weekend mulling all this over again. But come Monday I will more than likely issue a sell order.

Thanks all.

mark9

I commented on the thread (5822454 - sorry can't post links) as i was interested to hear your thoughts about a market crash and its effects on your strategy.


It seems that this thread may well be the answer!


My circumstances are similar to yours and i too am going to hold a cash pile, in my SIPP to get me to retirement age.

Bravepants

mark9 wrote: »

I commented on the thread (5822454 - sorry can't post links) as i was interested to hear your thoughts about a market crash and its effects on your strategy.


It seems that this thread may well be the answer!


My circumstances are similar to yours and i too am going to hold a cash pile, in my SIPP to get me to retirement age.

Hi, sorry I missed your post on the other thread. Yeah, my reasoning for holding as cash is that I will need ALL of it in 5 years time if I am to decide to retire at that point. I'm not going to drawdown at the 4% safe withdrawal rate, but my full tax allowance each year.



I have an S&S ISA which I am taking more risk with, and some DB pensions - so the SIPP is only a part of my strategy, but nonetheless a vital one.



I will research other near cash products in the meantime incase I find something I'm willing to buy, and of course top-up to take advantage of the tax relief.

kidmugsy

Bravepants wrote: »

I have decided to sell my fund and hold as cash. My reasoning is as follows:


1. This pot is THE KEY to my retiring at 55. Holding an integer number of years' worth of tax free (+25%) drawdown will carry me to age 60 where I can start drawing a DB pension for an equivalent amount per annum. Most crashes recover after 2 years, so they say, but if I suffer a crash at age 53 or 54 then I will be forced into One More Year (OMY). One More Year syndrome is a common malady affecting early retirees anyway, and I don't want to be forced into it.

3. The loss due to inflation risk is a lower priority to me than the risk of losing, possibly 25%, in a downturn.

Probably wise. And perhaps a timely decision. Good for you.

Bravepants wrote: »

2. This pot started out as an AVC, which has been funded from the money I would have lost due to being in the 40% tax bracket. It has grown well and I have benefitted from the tax relief already.

Entirely irrelevant - water under the bridge.

Bravepants wrote: »

I have an ISA with a 70/30 equity/bond asset mix, which I intend to continue pumping £1000 a month into until retirement, switching down to 60/40 upon retirement.

OK: hedging your bets. Possibly a good idea too.

AnotherJoe

I'm pretty high risk and wouldnt do this, but appreciate your standpoint and seems like a logical thing to do.
The other thing it gives you, which perhaps you mention in passing, is that you now have your retirement date "fixed", you aren't left wondering for the next 5 years if it really will be the date you'll go and if OMY will be needed.
Good luck.