Gilt ladder implementation Query

incus432

I also see these are IL gilts which reduces the range. So instead of buying TR26 why not use 43k to buy TS27 - a nominal gilt 3.75% maturing March 2027- GRY 3.72%? This means you dont have a big chunk in cash for a year.

For myself I only worry about inflation if the ladder is over 5 years

I see opting for monthly payments reduces the overall cost by 3,500 - unusual I think

WannabeEdouard

https://forums.moneysavingexpert.com/discussion/comment/81856793#Comment_81856793

Good point about IL gilts. Food for thought and something consider. Thanks for the comments

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/81855284#Comment_81855284

STMMF funds/ETFs hold a collection of relatively short term debt (mostly less than 6 month matuirty) including UK treasury bills, corporate bonds, etc. Their return is close to the SONIA rate (in turn, close to the base rate). Units can be bought and sold like any other fund/ETF. Functionally, they are similar (but not identical) to an easy access savings account.

One way of managing withdrawals is each year to sell 1/N of the remaining amount, where N is the number of years* left.

For example, for a five year case with £43k per year required you'd first set aside 5*43=215k. The first amount of £43k is withdrawn, while the remaining £172k is used to buy the fund/ETF. At the beginning of the second year, assuming an annual return of 3.75%, the fund will have grown to £178k and you would then withdraw 178/4=£44.5k and so on. The amount withdrawn each year will increase by the annual return and therefore provide some modest inflation protection. One risk here is that inflation is higher than the return in which case the real value of the withdrawal will decrease.

*It can also be done monthly too, so in the first month you'd withdraw 215/60~£3580 and so on.

WannabeEdouard

Interesting , So seems to do the job that a gilt ladder does . Is this a better return ? I wouldn't know were to start with MMF's though.

MallyGirl

they are different routes to address a similar goal. Differences are more marked if the money is held outside of a pension or ISA. Gilt maturing payouts are free from capital gains so if you choose ones with low coupon rates (the bit that is liable to income tax) then you can keep the tax bill down compared to the same money in savings accounts or MMFs

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/81857817#Comment_81857817

The advantage of a ladder is that the cash flows in real (for an inflation linked gilt ladder) or nominal (for a nominal gilt ladder) terms are known in advance.

While the nominal cash flows using a MMF in the way I described are reasonably well known (absent massive changes in interest rates), the real cash flows are not.

The availability of STMMFs are platform dependent. For example, in a Vanguard SIPP you can use their MMF (e.g., see https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-a-gbp-accumulation/overview ), while on SW/iweb there is a choice of about 4 different funds (inc the vanguard one and the one from Royal London, see https://www.investments.scottishwidows.co.uk/funds-centre/fund-supermarket/detail/GB00B8XYYQ86 ).

Whatever platform your SIPP is held on will probably have one.

SVaz

Nominal Gilts maturing after 2033 aren’t a bad return , my 5 year ladder 2034-39, has an average coupon of 4.6% and they are markedly cheaper than Index linked ones, I’ll even make a capital gain of around £1k due to a couple of the Gilts being under par. I wouldn’t risk nominals any further ahead though.
Who knows what 2040 will look like.

I feel like my method of using Short term MMFs for the 5 years from 2027 rather than Gilts of either flavour, carries a little risk but as long as interest rates hover around 3%, I’m ok with that. My military pension goes up with inflation and my Wife’s completely tax free income from her ISA will pick up any slack if inflation increases.
It all comes down to personal circumstances and you have to view things as a whole.