5 year drawdown fund

[PhaseThree]

(So I went to the MF site and you'd all moved, I should really try and keep up with these things....)

Today is a big day - After 20 years of relatively successful investing I've sold all the equities in my (Youinvest) SIPP and am now looking at what to do with the resulting pile of cash.

Why ? - I'm moving into FIRE range and I'm not going to let anything endanger it. The most recent spate of trade disputes has been the final straw. The downside risk has become too great.

The plan - I have a couple of DB schemes that will kick in at 60 (lucky me) followed by state pension at 67. The SIPP will be used to bridge the gap between 55 and 60. After taking a tax free lump sum I will be left with around £200K which I'll take as drawdown of £40K per year over 5 years starting this time next year.

The problem - What do I do with the cash in the 1-5 years until I need it for drawdown ? It has to be very low risk, which precludes equities in any form. Gilt yields are at historic lows but are at least safe when held to redemption. Corporate bonds, particularly those held to maturity are an option. Short dated bonds ETFs could be the answer.

Help please - What have others done in this situation, what have I missed ?

Thanks
Ø3

[Spet0789]

I’d recommend a 50:50 mix of ERNS (ultrashort GBP cash) and TIP5 (index-linked US Treasuries sub 5 years). Buy ERNS now and TIP5 in monthly chunks over the next 6 months. Assuming you buy stuff that is made or grown outside the U.K. that should protect your buying power better than GBP only. DYOR.

[Alaric]

Gilt yields are at historic lows but are at least safe when held to redemption. Corporate bonds, particularly those held to maturity are an option. Short dated bonds ETFs could be the answer.

What you might do is a liability matching exercise.

So hold your expected expenditure from now until June 30th 2019 in cash. Buy now a one year Gilt or Corporate Bond to mature on or about July 2019 for your expenditure from 1st July 2019 to 30th June 2020. Repeat until the DB pension kicks it.

If you want to do it rigorously rather than approximately, you work backwards from the last payment. That way you can allow for what little interest/coupon you will receive.

As far as risk is concerned, individual corporate bonds are subject to Company risk. Funds of Corporate Bonds minimise this risk, but you may be incurring interest rate risk, where the price collapses relatively speaking just when you need to sell for income.

[Chrysalis]

Not what you asked, but have you considered the relative merits of UFPLS vs putting it all into drawdown? Depends if you have a use for the tax free cash of course, but worth considering the tax implications of both options carefully.
As far as what to invest in goes, you’ve mentioned the obvious options. A ladde of short gilts and/or corporate bonds is an obvious low cost choice, if you’re prepared to research the corporate bonds and take on the additional default risk.

[PhaseThree]

Thanks for all the ideas - A more things for me to think about.
I had looked at ERNS as a possibility but had not thought of TIP5. I would need to carefully consider the currency risk in buying into USD, although I do accept the argument that a lot of my expenditure is USD linked.

I think a gilt ladder is looking like the most likely solution at the moment, maybe with a small percentage of short dated corporate bonds mixed in.