MyMoney Online

3 reasons why you should never cash in your pension fund

South Africans change jobs on average 7 times in the working phase of their lives and 95 percent end up without sufficient funds when they retire. The main reason is that they cash in their pension funds instead of preserving them every time they move jobs.

Every time you cash in your pension fund you blow a huge whole in your provisions towards your financial freedom in the future. Financial freedom takes place when your investments can provide you with a sustainable income for the rest of your life. Your pension is the most important contribution to this as it is probably the biggest investment you’ll make over the longest period of time.

Cashing in your fund has dire consequences that you should be well aware of:

It costs you more than you realise.

Assuming you save with 30 years to retirement and you cash in after the first 10 years. The monthly amount needed to catch up to the same value at retirement is 3 times. If you cash in after 20 years, the amount needed to catch up is R10 times. You also give up tax payable to SARS which if left in your fund boosts the compounding effect on your money. The bigger the amount the bigger the compound over time.

Cost of living

If you cancel your pension to pay off debt then you just are kicking the can down the road. Having too much debt in the first place is a result of you living beyond your means. Cashing in your pension is effectively turning off your income at retirement. If you cannot afford your lifestyle now whilst you are earning a salary you certainly won’t afford to live when you retire. You have to bite the bullet and pay off your debts with the income you earn after savings. It’s the only way to arrive at financial freedom into the future.

Protected investment

Retirement funds are inalienable. Which means your creditors cannot touch the money. This is a useful consideration for those wanting to go into business for themselves and intending to cash in their pension

fund as an investment into their business. You would do well to use the banks money instead of yours. You get the best of both worlds. You retirement funding stays on track and if the business goes bust then you still have your funds for the future.

It stands to reason that cashing in your pension fund is not the first thing you do when you leave your job. On the contrary it should be a measure of last resort.

Listen to Paul Roelofse's chat with Africa and Azania here...

Read more from Paul Roelofse at www.investforlife.co.za


This article first appeared on 702 : 3 reasons why you should never cash in your pension fund


Recommended

by NEWSROOM AI
Read More
3 best shares to buy right now (by 27Four)

3 best shares to buy right now (by 27Four)

Investment Analyst Nadir Thokan shares his stock picks of the week on Bruce Whitfield’s The Money Show.

How to retire (or stop working for money) by the age of 40

How to retire (or stop working for money) by the age of 40

Warren Ingram recaps the principles “supersaver” Julia, a young client of his well on her way to financial freedom, is following.

3 hottest shares on the JSE this week (by JM Busha Investment)

3 hottest shares on the JSE this week (by JM Busha Investment)

It’s “Stock Pick Monday” on The Money Show. Bruce Whitfield interviews Joseph Busha, Managing Director at JM Busha Investment.

5 dumbest things people in their 20s do with money

5 dumbest things people in their 20s do with money

Sam Beckbessinger, the author of “Manage Your Money like a F*cking Grownup,” has some tips, so you don’t have to live with regret.

Supersaver Julia is back! Is her (already substantial) nest egg still growing?

Supersaver Julia is back! Is her (already substantial) nest egg still growing?

The Money Show’s Bruce Whitfield interviews Julia and her financial advisor Warren Ingram.

Supersaver Julia, investing a third of her income (since 2013)

Supersaver Julia, investing a third of her income (since 2013)

She’s been inspiring The Money Show listeners since 2013. Is she’s still keeping it up?

Popular articles
'He told me people would want to keep him quiet at any cost'

'He told me people would want to keep him quiet at any cost'

Journalist Gavin Evans says the late Mark Minnie spoke to him about his fears that those he exposed in his book might harm him.

Zille won't stop fighting to have SANDF property released for affordable housing

Zille won't stop fighting to have SANDF property released for affordable housing

Zille says properties under the control of the state should be made available for local government's affordable housing plans.

'There is no verse in the Quran that says women should cover their faces'

'There is no verse in the Quran that says women should cover their faces'

Dr Taj Hargey says he is advocating for the ban of women wearing burkas in public because they look ridiculous.

[LISTEN] IRR believes list of targeted farms is genuine

[LISTEN] IRR believes list of targeted farms is genuine

Institute for Race Relations researches Terence Corrigan explains why they believe the list Afriforum has released is genuine.