Wouldn’t it be great if your money kept growing even in retirement? Well, with an Approved Retirement Fund (ARF), it does.
An ARF is where the balance of your pension goes when you have taken your 25% tax free lump sum. It keeps your money invested during retirement and gives you the flexibility to withdraw as much you like (subject to income tax, PRSI and USC). It is the most common post-retirement pension choice in Ireland. Still, ARF investments remain at the mercy of global market fluctuations, which makes tailoring your own ARF and planned withdrawals, to market risk, important. You don’t need to be an expert yourself to have input into what this all means and how your own pension should be structured – you match your pension risk levels to the timing of your withdrawals – to ensure you don’t take too much, or too little risk, in your retirement.
As a trusted financial advisor, GSB Capital Ireland knows why global market trends are increasingly important for Irish ARF investors. Here, we look at key trends to consider, how they affect your ARF and ways to protect and grow your investments.
Key Global Trends Influencing ARFs
So, what global market trends can affect your ARF investments and retirement planning goals? To keep things simple, let’s look at three potential factors:
- Interest rates and inflation: Due to inflation, you may need to manually increase your income in retirement to maintain your standard of living. To best prepare for this, have your financial advisor conduct a cash-flow projection before you begin your ARF so you can better plan your retirement income. All our cash-flow forecasts include inflation. When interest rates are high (and especially above inflation), you can also pick up fixed rate deposits and cash funds, like in the bank, within your pension.
- Stock market volatility: It’s likely that some of your pension is invested in stocks. If so, the overall fund and your future income/withdrawals may be impacted when your investments take a hit. Of course, stock prices also rise, and have been the engine of global finance for hundreds of years. When stocks are sensibly allocated – to your longer range withdrawals – your investments could just as well perform as you and your financial advisor had hoped.
- Geopolitical events: Global turbulence can cause market downturns and hit your ARF investments hard. However, making sure your immediate funds for withdrawal in the 1-5 year time range are cautiously invested – potentially even in cash and bank deposits – mean that you can keep stock exposure to your longer range funds and wait for things to improve. Having a diverse portfolio can reduce the overall risk, which is why it’s important to work with a financial advisor from the beginning.
What These Trends Mean for Your ARF
Now that we’ve looked at the common global trends that can impact your ARF investments, let’s assess key investment strategy points.
How they affect risk levels
Structuring your ARF between cash, bonds and stocks for different tranches of money is key. If you aren’t making any withdrawals for another 10 years, you can and probably should be 100% in stocks. If you need lots of income within the next 5 years – you wouldn’t want to expose much of this to stocks – it’s a very short time frame and the world is always uncertain.
Why diversification matters
Whatever the investment, diversification is somewhat of an unsung hero. It helps to spread your money across a broad portfolio so that, should one investment dip, another one will pick up the slack. It’s important to approach diversification with your individual circumstances and objectives in mind, and it’s essential to speak with an experienced advisor when developing your portfolio.
How to Protect and Grow Your ARF in a Changing Market
We’ve established that global markets chop and change, and we’ve covered trends that can lead to risks, so how do you go about protecting and growing your ARF? Here are four considerations that cover the most important bases.
Importance of regular reviews
The first step when looking to protect and grow your ARF Pension is to have it reviewed by a professional on a regular basis. Most importantly your own plans can change. You may want much less or much more money in the short term than you planned previously – this would mean an increase or decrease in risk would be appropriate. Not only does this realign your investments, but it also gives you direct insights and reassurances that your portfolio is managed for optimal returns.
Adjusting risk over time
The US stock index is 70% of all global stock market value. It has historically returned 9.5% per year over 150 years, which has included pandemics, world wars and the Wall Street crash of 1929. Despite that long term trend, there have been huge downturns in very short spaces of time. The 2008 financial crisis led to 48% drops in just one year. So despite the long term trend, things can go wrong – that’s just the way markets work. You want to factor this in to how your ARF is structured. However, you may choose safer, more consistent returns, which is also fine. It’s all dependent on your goals, preferred lifestyle and ongoing retirement income.
Keeping withdrawals sustainable
Retirement can last a long time, especially if you manage to end your career early. So, it’s important not to rush withdrawals and plan accordingly in the lead-up to retirement. Having a realistic plan in place, ideally designed by a pension planning expert, will help you live the retirement life you always dreamed of, but also maximise your money. Some people are too cautious and don’t spend as much as they could in early retirement. You worked hard for your pensions – if you could sustainably spend more without impacting your later life, you should.
Value of guidance from a financial advisor
It may seem like an obvious inclusion, but we here at GSB Capital Ireland know the difference speaking with an experienced financial advisor can make, not only regarding ARF investments, but with a person’s happiness in their retirement. Working with an advisor and having quite a simple portfolio that’s easy to understand helps people sleep at night. So, if you’re looking for help with financial planning in Ireland to make the most of your money in retirement, contact GSB Capital Ireland today.
How GSB Capital Supports ARF Investors
We use cash-flow modelling to customise your ARF recommendation to match the amounts of money you need, and when you need them to different risk levels. The highest risk would be a Global or US Stock Index tracker. The risk is simply market fluctuations – the assets are spread over so many companies that there is diversification built in. The lowest risk would be a money market fund or fixed interest deposit – these are based on the European Central Bank interest rate, the same as a mortgage or your current account is.
We recommend this because, as a trusted financial advisor, our team of retirement and pension planning experts understands your needs as a high earner. That’s why, when you sit down with a member of our team, we will design a pension plan tailored to your lifestyle and long-term income requirements. Not only that, but we will monitor global trends to protect your ARF investments and minimise disruption.
So, if you’re looking to invest in ARFs, already have one or want to move to an ARF, GSB Capital Ireland is the expert you need.
Conclusion
ARFs and investments can be very rewarding with the right approach. With proper planning, guidance and ongoing advice from the right people, you can establish a diverse portfolio that funds a retirement of flexibility and freedom.
So, what are you waiting for? To learn more or begin your ARF investment portfolio today, contact GSB Capital Ireland.
