Best way of funding the 4 yrs before State Pension

ShinyStarlight1

Thank you for your very helpful responses. I do appreciate your time in thinking about this question.

masonic

OldScientist said:

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).

Just to add to this, a period of high inflation is a big risk to a low risk investment strategy, and it is a bigger problem for investments to be held over a longer time period. Possibly not something to worry about over 4 years, but if planning ahead longer than that, an index linked gilt ladder may be a useful tool to hedge against high inflation. Currently such a ladder could deliver a return >1% above inflation and protect the spending power of the money invested.

Higher risk investments are also a good means of inflation protection, but with £190k in cash, even with a willingness to invest some of that in higher risk investments, some lower risk investments with inflation protection could help to balance investment risk and inflation risk.

Eyeful

I do hope you understand "Sequence of Risk" its important when approaching retirement.
  
This video should help if you do not (others videos are available)

https://www.youtube.com/watch?v=oyzR7tMmj9o

dunstonh

FatherAbraham said:

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.

Wouldn't it be better to draw from the pension?   
A DC pension could be used to draw £16,760 without any tax to fund the gap.
Then no/low tax money can be used in annual pension contributions and ISA contributions for use in later years when the OP becomes a taxpayer (assuming the SP and other income goes above the personal allowance)

(the OP has said the pension allowances have been used, which would indicate DC pensions exist).

ShinyStarlight1

My Pensionbee pension is absolutely tiny and I can only pay £2800 into it a year (£3600 with tax relief). So it will be a tiny supplement to my SP, eventually and can’t materially change this next four years until my state pension begins. 

It’s really how best to manage this next four years, financially. I’m currently chipping away at my savings, as is inflation. I was wondering if there was something more effective I could do in this pre-pension four years that I hadn’t considered.

dunstonh

My Pensionbee pension is absolutely tiny and I can only pay £2800 into it a year (£3600 with tax relief). So it will be a tiny supplement to my SP, eventually and can’t materially change this next four years until my state pension begins. 

So, for you, it would be best to pay in and draw it out each tax year until state pension age.

£2880 in.  £3,600 out with no tax to pay.  £720 of "free" money.
If you wait until after the SPA, you will have £540 tax to pay if you were to try and draw the same amounts.