Retirement

Five things to consider before cashing in your retirement fund

Losing your income may be beyond your control, but you do have control over the next steps you take – and they could dictate your future financial health.

5 Things

Glacier by Sanlam has some points for you to consider before you cash in your retirement fund.

1. Don’t rob your retired self

Glacier Business Development Manager Sherwin Govender says retirement savings are your money – but belong to you when you retire. Spending it now could mean that you won’t have enough saved to live on when you retire. And not having enough retirement savings means you will need to find income-generating 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, i.e. when you resign or lose your job. However, losing your job and retiring are two different scenarios:

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

b. If you withdraw (e.g. 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 your adviser about the tax you’ll pay before making a final decision.

3. Consider all the money you will be losing 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 your 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

It’s human nature to make financial decisions that seem good now but could turn out to be regrettable in the future. Seek financial advice from an accredited financial planner to guide you through difficult financial times.

Please note:

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.