New Year Resolution

Veloflyer

After reading many posts and absorbing all the very useful information - for which I am very grateful - I am minded to set up a 10 year ILG ladder in the New Year with the 50% of my total pot held with Bell. The other half will remain 100% equities ( global/US trackers mainly) held with HL.

I am 61 and still working but may well retire in 2026 -  basically to do things I want to do, rather than do the tedious stuff that others want me to do.

Bell seemed to work OK for a test purchase of ILG 26. 

As a final check before I commit, does anyone see any major disadvantages for the ILG ladder? 

I intend to hold all to maturity, but should I need to sell the gilts before maturity, can anyone comment on the risk of losing out big time should the need arise?  

   
 

leosayer

A few observations and questions - mainly playing devil's advocate:

- ILG ladders are great if you want to lock in your spending power for fixed dates in the future however your post gives no certainty that will retire next year, how much your ladder will pay each year or how much of your essential spending it will cover.

- Are you entitled to the full state pension? Have you factored that in to the gilt ladder maturity amounts?

- Do you think you'll be happy to manage the admin of drawing down (from ISA/SIPP/GIA?) into your 70s? Have you considered an annuity instead?

- What is your plan for mitigating risk and meeting your spending requirements once the 10 years is up?

There is certainly a risk of making a loss if you sell before maturity. For example, you can see on the link below that the clean price of T32 dropped 30% in 2022.

https://www.dividenddata.co.uk/gilts.py?ticker=T32

Veloflyer

A few observations and questions - mainly playing devil's advocate:

- ILG ladders are great if you want to lock in your spending power for fixed dates in the future however your post gives no certainty that will retire next year, how much your ladder will pay each year or how much of your essential spending it will cover.

It will mature each year with an amount that will easily cover annual essential expenditure. For sure I won't need to draw on it just yet - possibly for another 2 or 3 years - retired or not. The half pot should actually cover essential expenditure for around 25 plus years if ILG ladder based.   

- Are you entitled to the full state pension? Have you factored that in to the gilt ladder maturity amounts?

Yes and no in so far as I consider it a bonus.

- Do you think you'll be happy to manage the admin of drawing down (from ISA/SIPP/GIA?) into your 70s? Have you considered an annuity instead?

Yes - as long as I can do the DT crossword then I should remain reasonably compos mentis. Yes for sure an annuity is an option beyond the 10 years - maybe even before then.

- What is your plan for mitigating risk and meeting your spending requirements once the 10 years is up?

Annuity, another ladder or book a one way trip to Switzerland. 

There is certainly a risk of making a loss if you sell before maturity. For example, you can see on the link below that the clean price of T32 dropped 30% in 2022

That is quite a dip. I do intend to hold until maturity. The idea being wealth preservation and flexibility.

michaels

I have an ILG ladder but it serves a specific purpose, covering state pension and DB pension until they become payable.  If I were looking at a secure income floor for life (ie in excess of state pension plus DB) I would probably use an annuity instead.

One thing that is a problem is that it is fixing a real gross income, the freeze in the tax thresholds will likely mean this is a falling income in real terms after tax.

Veloflyer

michaels said:

I have an ILG ladder but it serves a specific purpose, covering state pension and DB pension until they become payable.  If I were looking at a secure income floor for life (ie in excess of state pension plus DB) I would probably use an annuity instead.

One thing that is a problem is that it is fixing a real gross income, the freeze in the tax thresholds will likely mean this is a falling income in real terms after tax.

I think I have a broadly similar view. I have 6 years until the state pension kicks in and I would like to protect what I have until then at least. Annuity always remains an option.

A freeze in the tax thresholds is surely a problem if you pay any tax - not just that associated with fixing incomes?

Hopefully in the first few years of withdrawals from the SIPP I won't pay any tax - living off the lump sum and the 12K allowance from the crystallized portion.    

tigerspill

I have chosen to do similar.
I have retired.
I am using some cash and ILGs to top up my spending for the next ten years to my desired amount.  This will lock in the value and not be eroded by inflation (or maybe a little on the cash).  This will be around 25% of my investments.
The rest in equities.  I will add an additional year ILGs each year using coupons and selling equities (unless they tank).
This may not absolutely maximise growth, but I can trade this for security.

Veloflyer

tigerspill said:

I have chosen to do similar.
I have retired.
I am using some cash and ILGs to top up my spending for the next ten years to my desired amount.  This will lock in the value and not be eroded by inflation (or maybe a little on the cash).  This will be around 25% of my investments.
The rest in equities.  I will add an additional year ILGs each year using coupons and selling equities (unless they tank).
This may not absolutely maximise growth, but I can trade this for security.

I am reasonably confident given the security that my half pot in ILGs plus the state pension will be adequate to cover the basics for at least 25 years. The other half may be left to do with what I will...