By Sherwin Govender, 5 October 2020
It is estimated that a further 3 million South Africans have lost their jobs during the country’s nationwide lockdown with more job losses still to come.
Losing your income may have been out of your control, but the next steps you take are – and they could dictate your future financial health.
Sherwin Govender, Business Development Manager at Glacier by Sanlam, suggests five things to consider before you cash in on your pension fund.
Retirement savings are your money – but they belong to you when you retire. Spending it now could mean that you won’t have enough saved to live on when you retire. Not having enough retirement savings means you will need to find income-generating employment after you retire. If jobs are scarce now, what will the job market look like when you’re 60?
You can only cash out your pension fund if you withdraw from the pension fund, in other words, when you resign or lose your job. Losing your job and retiring, however, are two different scenarios:
The tax payable when cashing out your pension fund is calculated as follows:
You’re giving up a lot of the ‘magic’ of compound interest, especially if you cash out 100% of your pension fund now. In the table below is an example of the financial outcomes of three people, Chris, Thandi and Dave, who all lost their jobs and withdrew money from their pension funds.
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. Sanlam offers free debt management assistance;
visit our Credit Profile page for more details.
It’s human nature to make financial decisions that seem good now but turn out to be regrettable in future.
Seek financial advice from an accredited financial planner to guide you through difficult financial times.
“It is important to ensure that you have worked through these considerations before cashing in your pension as a short-term solution as this could have dire effects on your long-term retirement plan”, concludes Govender.
Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.