The is a very good question.
You don't say how much the ARF is worth or the level of income you need but let's assume that you don't need more than the 5% that you must take.
All the growth within the ARF is free from personal taxation so if you achieve a return in excess of the 5% distribution this is tax free.
Equally the proceeds of an ARF are currently subject to Income tax at 20% in the hands of a beneficiary over 21 rather than CAT at a rate of 25%.
In fact the reason the revenue introduced imputed distributions in the first place was that many people were using their ARF primarily for estate planning purposes.
So all things being equal if you pursue a prudent investment strategy you should benefit and or your estate should benefit from leaving the capital in the ARF.
However, you also express an inclination to stay mainly liquid suggesting deposit accounts.
As an investment strategy for an ARF this is imprudent and you could find that buying an annuity would be more appropriate.
I have written at length about the critical yield calculation that an ARF investor needs to make when considering their investment return.
The risk here is longevity. A male with normal life expectancy in Ireland today could reasonably expect to live to around 82 to 84 on average.
Under these conditions a 100% cash strategy has been described by the UK regulator as recklessly conservative.
As a rule of thumb an investor in their 70s should have an allocation of around 30% in equities and other real assets with the balance in a mix of cash and bonds.
This might have an expected return of between 4.5 to 5%pa assuming reasonable ARF and fund management costs.
Compared to an annuity which might offer around 5 to 6% anything more conservative than this strategy is going to mean that an annuity might work out as a better investment.
Of course you will only really know after the fact and of course then it's irrelevant anyway.
As I always say there are no prizes for being the richest person in the graveyard.
Of course all of this is subject to current state of health, desire to leave a meaningful bequest to family, value of other personal assets, attitude to risk and a multitude of other factors.
But hopefully this will give you a framework to consider your options.
For personalised advice consult a Certified Financial Planner (
www.Fpsb.ie)
All the best
Marc