MikeT wrote:Hello, I've read a few of the (excellent) threads on here about nominal and IL gilts and I've learned a lot from them, along with the links to other discussions (Monevator, etc). With IL gilts having positive yields across all maturities they seem (to me) a virtually risk-free way of ensuring the value of today's money in to the future.
Whilst I can see many benefits, I'd like to try and make sure I understand as many of the risks/downsides as possible.
From what I've read it seems some of the main considerations are:
Somebody outliving their ladder
Expenses not matching the income
RPI/CPI not being relevant to personal circumstances
I'm reasonably comfortable with these in as much that:
I'd look to extend the bond ladder out to around age 80 at which point I would use the remainder of my SIPP to buy an annuity
I've gone back through my total annual spending over the last few years and the plan would be to buy each gilt to be slightly in excess of this
I'm not sure there is much I can do about CPI/RPI not exactly matching spending in retirement
Are there other issues I should be thinking about?
Thanks.
CPI/RPI is a slowed measure. Buy and hold is no different to the cost-less lumping in each and every day, so for tomorrow many will 'spend' much of their total wealth on a house/stocks/other assets and spend relatively little on consumer products/services/items.
viewtopic.php?p=660928#p660928Bonds are you lending to someone who gets to set the terms and conditions, and can direct the figures (CPI, interest rates, taxation rates). In past cases of high stress (multi-year high inflation/interest rates) tax rates even for the average investor where increased to near 50% levels, in effect a non-coincidental partial default. Some cast that as being like buying fire insurance from a arsonist. If a stressful period is endured at some point during your 30/whatever year retirement period and that insurance payout is halved or maybe more! And given the state of government nowadays a stressful period at some point over the next few decades perhaps has a relatively high probability. The appearance of tax efficient/exempt can at any time be washed away with the stroke of a pen and as such is no guarantee either. Annuities bear the same risk, may very well be using the exact same Gilts at their foundation, but where unlike the state they're LTD. (could simply opt to declare bankruptcy).