Gilt ladder implementation Query

WannabeEdouard

I have recently retired and will need to access cash from  my sipp from April.  I am 60 and will receive DB when I am 65 . So my plan is to use a  gilt ladder  to live off until DB kicks in.  What I am unsure about and maybe it doesn't matter is , do I construct 5 year gilt ladder or 4.  if I do 5 years one gilt would need to mature in April so I can withdraw cash . If I take a 4 year with first Gilt maturing year in April then I would need to take money from Sipp for a year.   Any recommendations?

squirrelpie

Why not leave a quarter of the SIPP in near-cash and build a 4-year gilt ladder with the rest, starting with one maturing in April 2027? Then take the 25% tax free and use that for the first year, with any spare kept for use later if needed.

SVaz

There seems little point in building a Gilt ladder for the next 5 years,  when I looked into it vs just keeping the money in a Short term money market fund,   the figures just didn’t add up unless interest rates fall well below 3 % and inflation runs rampant - both of which are unlikely in my view.
Gilt coupons are so low for those years,  it just doesn’t seem worth it. 

Any Gilt with a half decent coupon was priced way over par up to 2032. 

WannabeEdouard

squirrelpie said:

Why not leave a quarter of the SIPP in near-cash and build a 4-year gilt ladder with the rest, starting with one maturing in April 2027? Then take the 25% tax free and use that for the first year, with any spare kept for use later if needed.

Thanks for reply.  Seems like a decent plan.  Probably not worth buying a gilt that is maturing in 3 months

WannabeEdouard

SVaz said:

There seems little point in building a Gilt ladder for the next 5 years,  when I looked into it vs just keeping the money in a Short term money market fund,   the figures just didn’t add up unless interest rates fall well below 3 % and inflation runs rampant - both of which are unlikely in my view.
Gilt coupons are so low for those years,  it just doesn’t seem worth it. 

Any Gilt with a half decent coupon was priced way over par up to 2032. 

Not sure how these short term funds work.  How do I access cash from them on monthly basis . The maturing Gilts depositing cash into sipp on a regular basis seems easier to manage. But I do need to do some research 

ali_bear

Are you thinking about having a gilt ladder inside the SIPP wrapper, or outside in a general investment account? 

You could just take income from your SIPP to cover the 5 year gap. Alternatively if you have a large lump sum on your hands, a gilt ladder is one way of converting that money to income over a number of years. If you use index-linked gilts the fund will be protected from inflation and also you'll minimise the tax paid on the coupons. 

A fixed-term annuity does the same job. 

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81855233#Comment_81855233

I was also thinking of setting up a 5 year ladder until SP kicks in. I understand the reasoning not to build one as you suggest. Would an alternative be just to cash in the present (equity) funds and leave the cash in the SIPP until ready to enact drawdown when I need the cash? I am with Bell, so I think cash gains interest…2% or so?

SVaz

All my cash, for use in the next 5 years, is in either the Fidelity Cash fund or the Royal London Short term money market fund, when the time comes to start drawing down, I’ll convert a year at a time into actual cash, which still pays some interest, just not the inter-bank Sonia rate that money market funds use. My main Sipp is with AJ Bell and is 40% mmf and 60% equities ( All world index fund)

My Gilt ladder kicks in in 2033 for 5 years and I’m planning on an Index linked ladder from 2025 for what’s left in the smaller of my two Sipps ( I have £15k in mmf ready to take a tax free lump sum at some point plus what I’m still contributing) .

My Wife is already drawing down to get all of her Sipp into ISAs before State pension age in 7 years, she converts her Money market fund to cash every 3 months and uses monthly drawdown.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81856223#Comment_81856223

Thanks for that - I don't know much about MM funds so I was just thinking of skipping that bit and cashing in the equity funds in lieu of setting up a gilt ladder

WannabeEdouard

https://forums.moneysavingexpert.com/discussion/comment/81856019#Comment_81856019

Yes inside Sipp. . idea is to de-risk part of sipp to Gilts and keep rest invested. I have taken TFLS . And in 5 years my DB and invested part will combine for my income , then state pension at 67 for additional money.

incus432

https://forums.moneysavingexpert.com/discussion/6652254/gilt-ladder-implementation-query

Of course different gilts mature at different times in the year (although many are in March) so you might be sitting with a lump of cash for several months. I assume you know this gilt ladder tool?

https://lategenxer.streamlit.app/Gilt_Ladder

It's very useful in that you can play with different start dates and lengths to look at the gilts chosen and cashflow .

Pros and cons. I like the simplicity of the gilt ladder - its guaranteed and once set up you are not at the mercy of changing interest rates, and just pays out at a fixed date.