Cashing in retirement fund is unwise

Losing one’s income may be beyond your control, but you do have control over the next steps you take – which can dictate your future financial health.

Glacier by Sanlam offers some points to consider before cashing in your retirement fund.

1. Don’t rob your retired self.

Glacier business development manager Sherwin Govender says spending one’s retirement savings now can mean you won’t have enough to live on when you retire.

This means you will need to find incomegenerating employment after you retire.

2. Cashing out your retirement fund is not tax efficient.

You can only cash out your company pension fund if you withdraw from the pension fund, ie, when you resign or lose your job.

However, losing your job and retiring are two different scenarios.

If you retire, you can only cash out up to one third, 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 when you resign would be more than if you retired from the fund.

Speak to an adviser about the tax you’ll pay before making a decision.

3. Consider all the money you will lose in compound interest. You’re giving up a lot of the “magic” of compound interest, especially if you cash out 100% of your retirement fund now.

Again, get a financial adviser to do the calculations before you make a decision.

4. If you need the money to pay 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.

5. Look at your big financial picture with a qualified financial adviser.

Seek financial advice from an accredited financial planner to guide you in difficult financial times.

It is important to ensure you have worked through these considerations before cashing in your retirement fund as a short-term solution as this could have a dire effect on your long-term retirement plan.

Contact Sticks Stiglingh at Strata Financial Solutions BlueStar on 046-24-4948/ 071-612-7339 or sticks@stratabluestar.co.za for professional advice.