In South Africa, members of a pension fund are able to access their pension benefits before retirement and unfortunately many choose to do just that without fully knowing the effects that these early withdrawals can have.
It may seem like a quick cash fix to draw from your pension fund when you face a job change or resign, but you are actually hurting yourself. Firstly, there will be a reduced amount available at retirement and there are also tax consequences.
Withdrawing your pension before its time is a risky manoeuvre and can do more harm than good as you will be sabotaging your financial wellness in retirement. The sad truth is that only about 6% of South Africans are able to maintain their standard of living in retirement. The issue arises because of the high cost of living and rising debt, so many members are looking to access their retirement fund as a solution.
You may have a decent lifestyle during your earning years, but often will not have a decent retirement secured. This is due to a lack of proper financial planning and discipline.
It’s Not for Debt
If you are considering resigning to access your retirement fund so that you are able to use the cash to pay for your living expenses or to pay off debts, then stop and think again. You need to look at the reason you are in debt, which can usually be down to having a bad relationship with money and trying to fund a lifestyle that you are not able to afford.
Having a budget can ensure that you do not live beyond your means and can help you to not steal from your future self.
You need to practice restraint and not buy material things just because the people around you have them or because you have seen something on TV or social media. You can only fake wealth through loans and credit cards for a short period of time and it is not a sustainable way to live. Also, this will just lead you to a debt trap and you will end up paying more. Resist the urge to dip into your retirement fund and rather speak to a debt counsellor if you feel you are over-indebted.
The bottom line is that you should not use your retirement fund for anything other than your retirement, no matter how bad the situation gets.