Why you should never cash in your re­tire­ments sav­ings

Finweek English Edition - - MONEY - BY BUHLE NDWENI

Are­cent sur­vey con­ducted by San­lam f o u n d many em­ploy­ees are un­aware of the ef­fects of cash­ing out their re­tire­ment sav­ings when they change em­ploy­ers, and many pen­sion­ers said they now re­gret do­ing so, says Viresh Ma­haraj, chief mar­ket­ing ac­tu­ary at San­lam Em­ployee Ben­e­fits.

The re­search in­cluded re­sponses from 100 stand-alone funds, 100 em­ploy­ers par­tic­i­pat­ing in um­brella funds, 503 ac­tive mem­bers and 250 pen­sion­ers.

“Al­most half of all ac­tive mem­bers and more than half of all pen­sion­ers in­di­cated that they did not un­der­stand how this seem­ingly in­nocu­ous de­ci­sion would neg­a­tively af­fect their abil­ity to cre­ate life­time wealth. With the ben­e­fit of hind­sight, they in­di­cated that they now re­gret their de­ci­sion to cash in their sav­ings,” says Ma­haraj.

He says as­sum­ing a young per­son changes jobs ev­ery five years and opts to with­draw their re­tire­ment sav­ings each time they switch em­ploy­ers, the re­search shows that had they pre­served these sav­ings from the start of em­ploy­ment, they would have close on 16 times more wealth at re­tire­ment com­pared to the amount they would have built had they cashed it in.

“Bet­ter com­mu­ni­ca­tion is re­quired of em­ploy­ers to equip em­ploy­ees to make bet­ter de­ci­sions when they change jobs. 63% of re­spon­dents who cashed in their sav­ings re­ported that they used the cash to set­tle debt rang­ing from credit cards through to mort­gage bonds,” Ma­haraj ex­plains.



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