10th June 2019
Should I buy an Annuity or Approved Retirement Fund (ARF)? Unless we are retiring from a defined benefit (DB) pension scheme we will have this decision to make in regards how to access our pension benefits. Once we take out tax free lump sum we will have this decision to make with the balance. It is a big decision with multiple complexities involved, both financial and emotional.
Do I want the predictable route or do I want the less predictable but potentially more lucrative route? Do I want the peace of mind knowing that I’ll get €x every month for the rest of my days, or do I want the potential to get more every month and potentially leave a legacy? Do I want a piggy-back down Everest or do I want to navigate it on my own two feet? That last sentence might seem odd but bear with me. Before I outline the considerations I believe we should make before deciding on annuity or ARF, I want to put this decision in a little context.
I was speaking at a recent ‘Point of Retirement’ event in Croke Park. As part of my piece I compared managing one’s income in retirement to climbing and descending Everest. I made the comparison that when we are in ‘accumulation’ phase of building and preparing for leaving full-time work we are on the ‘ascent’ of the mountain. We reach the peak at the time we depart full time employment – however as anyone who has ever climbed a mountain will confirm – the descent is far from easy. One stumble and it could be damaging or indeed fatal. This is a much lesser risk when we are ascending, a fall or stumble has a much lesser probability of significantly screwing-up our accumulation plan.
While some could argue it is slightly dramatic, I do believe that managing our income in retirement is very similar to ascending and then descending Everest. Given the potential dangers, the impact of a stumble financially, and the significant importance of staying on track draws many comparisons. One of the attendees at the session sent me a link that very night, which was breaking news of the Irish climber who had unfortunately gone missing on the descent of Everest, only for another Irish climber to be confirmed dead a week later, again on the descent. It was obviously a pure (and really awful) coincidence but it surely hammered home the point about the dangers of descending, or in this situation, of navigating our ‘spending phase’.
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