Like most people visiting this article, you are seeking the right investment advice at retirement, have or will soon reach retirement age, and have built up a pension pot in one or more occupational pension schemes through individual pension plans or perhaps through a combination of both.
Investment Advice at Retirement
You are now faced with a decision after taking your tax-free lump sum, on obtaining an Annuity versus an Approved Retirement Fund (ARF) with the monies accumulated under your Defined Contribution (DC) Scheme and any other individual pension plans that you may also hold.
Whereas the annuity route under a DC pension Scheme may well suit some people and should be given careful consideration, the rest of this article is going to focus on Approved Retirement Funds (ARFs) and what represents the best advice in constructing your ARF, in terms of performance, longevity, and value.
All ARFs should be constructed on a personal basis taking account of your age & health, existing pensions, other assets, additional income, and succession planning.
Most of us in the private sector will have to wait until we are in receipt of the state pension before we can invest solely in an ARF which allows unlimited withdrawals (subject to tax, PRSI, and USC). Under this minimum withdrawals are automatically set up at a 4% PA from age 61 increasing to 5% PA from age 71.
So, when constructing your ARF you need to think about how long it needs to last, how much of an income you will need to withdraw from it, and who would most likely inherit your ARF if you were to pass away with a fund still in place.
One common way to create or construct your ARF portfolio is to focus on sustaining your underlying investment by investing in low-cost index funds with a spread of asset classes or in other words by using passive multi-asset funds.
The portfolio is designed to achieve a respectable long-term rate of return, and along the way, you follow a prescribed set of minimum withdrawal rate rules that will allow you to take out 4% a year from age 61 increasing to 5% a year from age 71.
The concept here is to target an average long-term annual return that meets or exceeds your withdrawal rate. Although you are targeting a long-term average, in any one year your returns will deviate from that average quite a bit. To follow this type of investment approach, you must maintain a diversified allocation regardless of the year-to-year ups and downs of the portfolio.
Lower risk-rated funds are used to meet near-term cash flow needs, and growth-oriented investments and higher risk-rated funds are used to fund future cash flow needs.
To learn more about how to minimize ARF costs, as well as the advantages of constructing a personalised ARF portfolio, call us to book a free 15-minute no-obligation ARF consultation.
As regulated financial brokers, One Quote offers a huge choice with low-cost investment diversity to suit all ARF client requirements – request a callback.