monagt,
On retirement you can use the PRSA fund to either:
- Buy an annuity (a guaranteed income for life), or
- Invest in an ARF
If you buy an annuity, the income you get will be a function of your age (therefore your expected lifespan), the type of pension you buy (whether it is payable on your life only, whether it continues to a surviving spouse, whether it is indexed etc). The annuity could range from as low as 3% p.a. of the capital to perhaps 7% or 8% p.a.
If you invest in an ARF, the investment growth will depend on how the funds are invested (asset allocation, risk profile etc). But do not confuse this with the amount of income that you can draw down from the ARF. You can draw down any amount you wish (suject to the minimum 3% compulsory drawdown). Clearly if you draw down more than the growth, then you are eating into the capital. If you draw down less than the growth, then the ARF will increase in value.
Whilst an annuity gives you a fixed and guaranteed income for life, the capital is foregone. The ARF on the other hand allows you to retain control over the capital, to invest the funds in line with your personal risk/return requirement and to draw down an income as you require. The downside is that the ARF could run out of funds whilst you are still alive (depending on how long you live, the rate of investment return and the rate of drawdown).
So the decision as to whether you buy an annuity or invest in an ARF is dependant on how long you intend to live in retirement. The
average life expectancy for a male retiring at 65 is now about 20 years. So if you intend to live forever,,,, buy an annuity, if you intend to pass on sooner... invest in an ARF.