If you are in the midst of moving company, then you need to be careful with what you have built up, which includes your retirement savings. It can be confusing to know what to do with retirement savings that you have accumulated through your employer when you are moving jobs.
Some see this a chance to cash out a nice lump sum that they can give themselves as a bonus, that they can use for a holiday or even a down payment on a new car. However, this type of decision will probably be financially destructive in the long run.
If you choose to cash your pension out when you change jobs, then you will lose your accumulated savings as well as any returns you would have gained on this during the rest of your working life. This shortfall will be extremely difficult to make up later in life and those years of savings will be gone. If you do find that you are in financial difficulty and you have no other choice apart from dipping into your retirement savings, then only cash out a small portion and leave the rest for the long term according to Chris Eddy from 10X Investments
In South Africa, it is very popular for us to not persevere with 70% to 80% of fund members having cashed in on their savings when changing jobs. However, when you choose to cash your pension out then you may pay hefty tax fees.
The tax free portion that you can withdraw before retirement date is R25 000 and anything more than this is taxed at 18% or more. Instead of withdrawing the lot rather transfer your accumulated savings into an alternative retirement savings fund like a preservation fund, so it has a chance to grow. You will then be able to benefit from compound interest, which is key.
It might be tempting to cash out your savings especially as 2019 has been a challenging year and the cost of living is continuously on the rise, but resisting this urge will help to take your savings to the next level.
When you see that your balance statement is in ten of thousands or even hundreds of thousands then it can be very tempting to take it out when you have bills to pay and debt to pay off, but you should be looking at your retirement savings as precious. It is after all your retirement savings that will help you to preserve your standard of living in retirement.