The Personal Retirement Savings Account (PRSA) is one of the most beneficial and tax effective retirement plans which allows you to retire more securely. If you are either nearing retirement or are still in the saving period, it is essential to understand how to utilise your PRSA to guarantee a secure future.  

Access to PRSA Before Retirement: 

One of the best aspects of a PRSA is that it allows you to access your retirement fund, years before you retire. You can cash in your PRSA any time after the age of 60 regardless of whether you are fully retired, or due to retire soon. This can be helpful if you plan on cutting back on work before formally retiring or if you need additional income to cover unexpected expenses. 

In cases of ill-health, you can access your PRSA at any age, which may help during tough times. In addition, those willing to retire early from employment can start accessing their PRSA from age 50. This ensures that your retirement account will always be there whenever needed. 

PRSA Benefits in the Event of Death: 

It is a great relief to know that if you die before you withdraw from the PRSA, the full value of your fund is passed on to your estate. This ensures that your beneficiaries, whether family or loved ones, receive the full benefit of your retirement savings, providing peace of mind that your hard-earned savings won’t go to waste 

The PRSA can also be integrated into the estate planning process to help secure financial stability for your heirs. 

Retirement Benefit Options  

Upon reaching retirement, the PRSA gives you several options for how you can use your savings. Firstly, you can take up to 25% of your PRSA fund as a tax-free lump sum, which can be an excellent way to cover any large expenses or enjoy a well-deserved treat after years of saving. 

After taking the tax-free lump sum, there are multiple options left for what you can do with the remaining amount: 

• Purchase an Annuity: An annuity guarantees a fixed income for life, which can provide peace of mind that you’ll never run out of money during retirement. 

• Transfer to an Approved Retirement Fund (ARF): An ARF offers flexibility, allowing you to draw down income as needed while keeping the balance invested. 

• Keep in a Vested PRSA: This option keeps your funds in the PRSA while offering income flexibility, similar to an ARF. 

• Withdraw the Remaining Balance: You can choose to withdraw the remaining balance as a taxable lump sum, though this may not always be tax-efficient, depending on your financial situation. 

Selecting the right option will depend on your retirement goals, risk tolerance, and income needs. It may be beneficial to speak with a financial advisor to determine the best route for your circumstances. 

Income Flexibility and Withdrawal Requirements 

Both ARFs and vested PRSAs allow for flexible withdrawals, which means you have complete control over the amount of income you choose to take in retirement. Nonetheless, every ARF or vested PRSA holder must withdraw a minimum of 5% per annum once the holder reaches the age of 61. This guarantees a constant flow of income while complying with tax regulations. 

This 5% withdrawal can provide a consistent source of income and help with monthly bills as well as, general expenses, without rapidly depleting your savings. 

Tax Efficiency 

Another important advantage of the PRSA is its tax efficiency. Making a contribution to your PRSA attracts tax relief which means there is less income tax that you have to pay for the duration of your working life. There is also inbuilt tax relief in growing your PRSA, which protects your savings. 

At retirement, all withdrawals made after the tax-free lump sum are taxable. However, you can plan your withdrawals in a manner that minimises tax payments, especially if they are coordinated with other sources of income. 

To get the most out of your PRSA, it’s important to plan carefully and think about your finances, retirement goals, and taxes. A PRSA gives you flexible ways to access your money and comes with tax benefits, making it a great way to secure your financial future in retirement. Working with a financial advisor can help you create a retirement plan that fits your needs and ensures you’re financially comfortable. 

By using all the benefits your PRSA offers, you can have more control over your retirement money and enjoy the peace of mind that comes with financial security.