Best way of funding the 4 yrs before State Pension

ShinyStarlight1

Does anyone have thoughts about the best way for me to fund the four years before my State Pension begins?

I have £190k in cash savings and £79k in investments. ISA and pension allowances are filled up this year. I’m mortgage free, married, and have a very modest lifestyle. My only income is from the interest from these savings/investments, so I am living off that and, necessarily, a portion of the capital.

Would a gilt ladder be a useful thing to fund these four years? Or is there something else I should consider? I also think I may have too much of my money in cash and should possibly invest more of it. 

masonic

Are these 4 years the next 4 years? You may find a gilt ladder gives a lower return than fixed savings. You might want to get an inflation linked return, in which case index linked gilts may make sense.

I'd agree there is the potential to invest more, but that is something you'd do with money not earmarked for the next 4 years.

EthicsGradient

Comparing cash savings rates eg 4 year
4 year Fixed Rate Bonds | Rates up to 4.26% AER
and gilt yields over that period
UK Gilt Prices and Yields
it looks to me like interest from cash beats the gilt yield. Since you have no other income, it looks like you can take all that interest with no tax (well under the £18,570 limit), and so the advantage that taxpayers get from low-coupon gilts doesn't apply to you.

If you feel you have too much in cash, then presumably you are taking the capital portion just from the cash - so your proportion in cash will decrease over the 4 years.

ShinyStarlight1

masonic said:

Are these 4 years the next 4 years? You may find a gilt ladder gives a lower return than fixed savings. You might want to get an inflation linked return, in which case index linked gilts may make sense.

I'd agree there is the potential to invest more, but that is something you'd do with money not earmarked for the next 4 years.

Yes, it’s regarding the next four years.

Albermarle

What kind of pension do you have ?
If you have four years when you have no/little taxable income, it can make sense to take taxable income from a pension, so as to fully utilise your £12570 personal tax allowance.
Otherwise it is wasted.

Bobblehat

Albermarle said:

What kind of pension do you have ?
If you have four years when you have no/little taxable income, it can make sense to take taxable income from a pension, so as to fully utilise your £12570 personal tax allowance.
Otherwise it is wasted.

That's what I did when I was made "redundant" at age 60. Got quotes from 2 smallish company pensions from much earlier employment, to compare what I'd get if I took them immediately vs what I'd get if I took them at SP age. It was a very small difference so I took the pensions and never regretted "retiring" at 60 

There was enough to pay all the bills without raiding my savings and those 5 years to SP age seem to go all too quickly! How did I ever have the time to work?

FatherAbraham

ShinyStarlight1 said:

Does anyone have thoughts about the best way for me to fund the four years before my State Pension begins?

I have £190k in cash savings and £79k in investments.

Full state pension is £12,000 per year.

Transfer £12k from cash ISA to a three-year fixed-interest account (an ISA, all things being equal, but you might not find one with the right rate which accepts transfers).

Another £12k goes to a two-year fixed account. 

Another £12k goes to a one-year fixed-interest account.

For the next twelve months, you consume £1,000 per month from your easy-access cash ISA.

As each account matures, you start to consume one twelfth of its total return each month.

Yorkie1

OP may wish to put more than £12K in later years, to allow for inflation

where_are_we

Albermarle said:

What kind of pension do you have ?
If you have four years when you have no/little taxable income, it can make sense to take taxable income from a pension, so as to fully utilise your £12570 personal tax allowance.
Otherwise it is wasted.

You say that your pension allowances are filled up this year. You are aware that you can contribute £2880 net grossed up to £3600 each tax year into a personal pension, if you have no earned income? Do this each tax year up to your state pension and as Abermarle alludes you can then withdraw tax free.

happybagger

I would hope OP has checked their SP record which shows they are entitled to the full SP when it becomes payable?

OldScientist

Yorkie1 said:

OP may wish to put more than £12K in later years, to allow for inflation

Provided inflation is less than about 4.2-4.5% (the interest rates on 1, 2, and 3, year accounts), the accounts will deliver an inflation protected income. However, you are right, to protect against larger inflation rates, then larger capital amounts will be needed. For example, protecting against inflation of up to 7.5%, i.e., an additional 3 percentage points over the interest rates, would require initial amounts of 12360, 12730, and 13112 in the 1, 2, and 3, year accounts, respectively).