Cost of cashing a retirement fund early is extremely high

Hefty taxes and too little to live on later in store

In today’s market conditions, if you have a job, hold on to it.

Resigning from a job without a new one lined up, just to access the money saved in your retirement fund, can have devastating consequences down the line.

When you resign from a job you are allowed to cash out the total of the savings accumulated in your employer’s pension fund, but you will have to pay a hefty sum in taxes.

The tax laws with regard to cashing out your pension fund are in place to dissuade you from doing so, and with good reason.

You may be financially desperate, but Sherwin Govender, business development manager at Glacier by Sanlam, provides a summary of why you need to stay in the job you have and not touch your retirement fund:

1. Don’t jeopardise your financial future.

Resigning from your job purely to access your retirement fund is risky.

There is way too much uncertainty in the job market, so don’t be confident about getting hired elsewhere soon.

Also, consider what resigning could mean for you and your family if you are the breadwinner.

2. Don’t rob your retired self.

Retirement savings are meant for when you retire one day.

Spending them now could mean you won’t have enough saved to live on when you retire.

Not having enough retirement savings means you will need to find incomegenerating employment after you retire.

3. Cashing out your retirement fund is taxing, literally.

You can only cash out your retirement fund if you withdraw from the pension fund, that is, when you resign.

Resigning and retiring are two completely different scenarios.

If you retire, you can only cash out up to one third of your retirement fund, and the balance must be used to purchase an annuity.

● If you withdraw, (when you find a new job and resign), you could typically transfer as much of your funds as possible to a preservation fund at a registered financial services provider. Other options would be transferring to a retirement annuity or the new employer’s pension fund.

However, you can cash out the full amount, but the tax you pay on the cash lump sum would be more than if you retired from the fund.

4. Consider all the money you will be losing in compound interest.

You are giving up a lot of the “magic” of compound interest, especially if you cash out 100% of your pension fund now.

5. If you need the money to pay your debts, consider other options first.

Investigate debt counselling or consolidation before dipping into any of your savings or investments.

A debt management programme will help you create a debt repayment plan that gets you back onto a healthy financial path.

Contact Sticks Stiglingh at Strata Financial Solutions BlueStar on 046-624-4948 or 071-612-7339 or e-mail sticks@stratabluestar.co.za for professional advice.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.