Allan Gray has recently published an interesting article which emphasises that withdrawing from your retirement has more fatal consequences than people realise. The article is available from our Fund Manager’s Comments section.
For your convenience we have summarised it below:
Think twice before cashing in retirement savings before you retire
- Taking a cash payout is the worst course of action:
- It may hamper your ability to accumulate enough savings because you miss out on compound interest.
- It attracts the most tax: it causes your retirement benefit to be taxed at a higher rate and reduces the tax free amount available to you when you retire.
- Not preserving your retirement savings can cost you more years of no income than you anticipate. For example, if you decide to take a cash payout at age 35, and if assuming you will need a monthly pension income of 70% of your final salary, your retirement savings will run out 12 years earlier than if you hadn’t taken the payout.
- What are your options? When leaving your employer you can transfer your retirement benefits to a retirement annuity (RA), or transfer them to a pension or provident preservation fund.
