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Don’t cash in your retirement savings when you change jobs

17 June 2022 NMG Benefits

When you leave a company, one of the most important financial decisions you’ll have to make is what to do with your retirement fund assets.

It’s hugely tempting to take your withdrawal benefit from your retirement fund to pay off debts, renovate your home, or take that dream holiday that you never could save enough for. But it could be one of the worst financial decisions of your life.

Fact is, most South African retirement fund members don’t have enough money to retire with. The biggest reasons for this are that they don’t save enough, and that they don’t preserve their retirement assets when they move jobs, says Craigh Chidrawi, Head of Retirement at employee benefits advisory firm NMG Benefits.

If you think you can easily catch up on your retirement savings by making additional contributions later, you’re in for a rude awakening. Depending on when you start contributing again to a retirement fund, the required contribution rate could be anything ranging from 17% to 50% of your salary.

“When you leave a company, your number one consideration might be your immediate needs. It can be difficult to think about the future, but drawing from your retirement funds should be your last recourse,” says independent financial advisor, Andrew Smythe.

In most cases when leaving your employer, leaving your benefits as a paid up member in your current retirement fund or transferring your benefit to your new employer’s retirement fund will be the best course of action. Transferring your retirement benefits into a preservation fund is another option to be explored.

If the temptation to take the money is too strong, keep in mind that the lump-sum payment might either be a great addition to your existing investment strategy, or a squandered opportunity if you chose poorly. The bottom line: don’t put your long-term financial well-being on the line for short term gain.

“Leaving your job is a huge life event, and you’ll need a steady hand and a clear brain to ensure that you stay on track to meet your retirement objectives. A financial adviser can help you decide on the best option for your unique situation, considering your risk profile, time horizon, and final goals,” says Chidrawi.

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