How to make your ARF re­tire­ment in­come last well into your old age

Bray People - - THE NOTEBOOK -

Q. Hav­ing re­cently re­tired at age 66, I have an Ap­proved Re­tire­ment Fund (ARF) avail­able to me of €125,000. My cur­rent in­come is State Pen­sion of a lit­tle un­der €12,000 per an­num and an in­come from an­other Pen­sion of €10,000 per an­num. My in­come needs in re­tire­ment are €30,000 per an­num Gross be­fore tax. I need to know how to struc­ture the in­vest­ment and with­drawals from my ARF, so that it lasts well into old age. Can you please help? A. Thank you so much for your query. With so many peo­ple now en­ter­ing re­tire­ment age and avail­ing of their Pen­sion Pro­vi­sion, this type of co­nun­drum is be­com­ing more and more com­mon.

An (Ap­proved Re­tire­ment Fund) ARF is de­signed to al­low re­tirees have con­trol and flex­i­bil­ity of their re­tire­ment ar­range­ments. It is used to pro­vide you with an in­come in re­tire­ment, whilst also al­low­ing you to re­tain own­er­ship of your fund.

The ques­tion posed by many peo­ple in your po­si­tion is how to en­sure: 1) A low level of risk with re­gards to how their ARF is in­vested in re­tire­ment, given the im­por­tance it plays in pro­vid­ing an in­come in re­tire­ment and, 2) What level of in­come can be taken from the ARF in re­tire­ment, that is both ap­pro­pri­ate and sus­tain­able, to al­low for sus­tain­abil­ity of in­come well into old age.

The level of Gross in­come you wish to draw­down from your ARF, as iden­ti­fied by you, is as fol­lows: In­come Needs €30,000 per an­num Cur­rent In­come is: State Pen­sion €12,000 p.a. Pri­vate Pen­sion €10,000 p.a.

To­tal In­come at present =€22,000 per an­num

In­come Short­fall is €8,000 per An­num (€30,000 less €22,000). This is the amount you wish to draw from your ARF each year.

As­sum­ing you were to in­vest your €125,000 ARF in a De­posit Based ARF with a Guar­an­teed Re­turn of for ex­am­ple 2.5% Net of Charges per an­num. Based on an in­come be­ing taken of €8,000 per an­num, in­dexed @ 3% per an­num to ac­count for in­fla­tion, the ARF In­vest­ment would sus­tain you for a lit­tle over 15 years.

In essence this would mean that at age 81, the ARF value would be €0. How­ever, based on the same set of fig­ures, were you to re­duce you start­ing in­come from €8,000 per an­num to €6,000 per an­num, the ARF In­vest­ment would sus­tain you for a lit­tle over 20 Years. This would mean the ARF would pro­vide an in­come un­til age 86. This rep­re­sents 5 ex­tra years of in­come pro­vi­sion.

As you can see, care­ful plan­ning and con­sid­er­a­tion of both the way in which the ARF is in­vested and also the amount that you draw­down from the ARF can have con­sid­er­able ef­fects on the time for which your ARF will be able to pro­vide you with a sus­tain­able in­come.

Whilst there is no limit to the amount you can with­draw from your ARF (although all in­come of this na­ture is as­sess­able for in­come tax), the key is­sues lie in the way in which you in­vest your monies, the level of in­come you need to take from it and the sus­tain­abil­ity of this in­come.

Jim Doyle ACMA QFA is a part­ner in RDA Ac­coun­tants of­fer­ing full ac­coun­tancy, busi­ness ad­vi­sory, tax ad­vi­sory and fi­nan­cial ser­vices. RDA Ac­coun­tants | 5 Up­per Ge­orge Street, Wex­ford | Louisville House, Water­ford Road, Kilkenny | 053 91 70507 | RDA Wealth Ltd trad­ing as RDA Ac­coun­tants is reg­u­lated by the Cen­tral Bank of Ire­land

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