Understanding streamlit with ILGs

Veloflyer

Put me right here please. Using the Streamlit tool, For ordinary gilts, 100K withdrawal in a ladder for 5 years would cost 445K. I understand the cash flow calcs. That is fine.

For ILGs it costs 510K. Cash flow calcs do say that values are in today's money, so am I right to believe that what I would actually receive going forward is 100K + 3%/ann (the assumed inflation rate) on top of the 100K?

QrizB

Yes, although the "3% assumed inflation rate" is irrelevant. You'll get £100k pa uplifted by RPI/CPIH, whatever it happens to be.

Note also that the two shortest-life ILGs T27 and T28 have negative real yields, which is why your £510k purchase price is greater than the £500k real payout.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81913678#Comment_81913678

Thank you for that - and for the further explanation ref yields. I wonder if I should therefore use a MMF for those years and ILG for 29/30/31. Mind, given I am currently pretty much all in equities and the recent falls, I am waiting a while to enact any purchase of same.

OldScientist

The future real yield of the MMF is unknown. If inflation takes off again, the BoE will (presumably) gradually increase the bank rate but there may be periods where the real return of the MMF will be negative (a recent example was when UK inflation peaked at about 10%, while the bank rate never exceeded 5.25%). On the other hand, if there is only a minor increase in inflation the real returns on the MMF may remain positive (they are currently about 0.5%).

However, the effect of negative real returns over two years on real income will (probably) be relatively small. For example, with a real return of -5%, by the end of the second year the income will be worth roughly 10% less than planned, i.e., £90k in today's money instead of £100k).

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81914058#Comment_81914058

Yes - I appreciate the risk - thank you. Plan B may be to go ordinary gilts for the first two years - but then again I appreciate the inflation risk still applies. Whichever way, I am still holding equities and they have dropped 4% or so from 2 weeks ago - which makes me keen to fix, hopefully when they have come back a bit in the not too distant future.

Lowtrawler

https://forums.moneysavingexpert.com/discussion/comment/81914241#Comment_81914241

A 4% correction in 2 weeks is only noise when it comes to equities. You can reasonably expect much larger corrections during your lifetime. Some of those corrections could take many years for recovery to past levels. Don't assume the fall you are currently seeing will automatically recover anytime soon. It could continue to fall. This is why timing the market is frowned upon.

If moving into Gilts is correct for you, just do it.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81914261#Comment_81914261

Right then - I have done it! Enough equities now sold within the SIPP to cover future assumed basic spend - hopefully till death us do part. Now residing as cash in the SIPP awaiting purchase of ILG ladder……I'm hanging onto Shell though……