If you are eyeing the money in your retirement fund savings pot with a view to withdrawing it, give some thought to a few things that could make you think differently.
Like the tax you will pay. The impact on your lump sum at retirement or your tax benefits at retirement.
We've summarised these in this video, that is also available on YouTube.
Or you can read the transcript below.
(Full transcript)
So there’s money in your retirement savings pot.
And you want to withdraw it?
Do you have at least R2 000 in your savings pot?
It is the minimum you need before you can withdraw.
And you can’t draw if you have already this tax year.
Tax on withdrawal
And you do know that you may pay tax on your withdrawal as well as a transaction fee, so you may not get out as much as you hope to.
If you earn enough to pay tax, the withdrawal will be taxed at your marginal tax rate and essentially takes back the tax deduction you enjoyed when you put money into your retirement fund.
Cash at retirement
You do know that the money in your savings pot, is the money you can take in cash at retirement.
You may need that cash at retirement, to relocate, for a medical procedure, for a new car or to visit your grandchildren.
If your savings pot is empty at retirement, you may be able to take one third of your vested pot – that’s the money you saved before the two-pot system was introduced. If your vested pot is empty too. Then you will only have the money in your retirement pot and you can only use that money to buy a monthly pension.
Tax benefit at retirement
You also need to be able to take a cash benefit in order to enjoy the tax-free benefit at retirement. – if you do not, you will not be able to use the retirement tax benefit.
Up to R550 000 of the cash lump sum you take at retirement is tax free – as long as you have preserved enough of your savings to take a lump sum.
Withdrawing before retirement reduces what you get at retirement. You don’t only lose the amount you withdraw. You also lose the tax-free growth on those savings possibly over many years.
This can make a big impact on the amount you receive at retirement.
Be careful if you are not on track
A withdrawal is a particularly bad idea if you are already behind on saving enough to provide the income you will need in retirement. This may be the case if you started saving late or withdrew after changing jobs.
So, let’s check, do you really need to access your savings?
Are you facing a real emergency for which you have no other options but to take from your retirement savings?
Or are you just eyeing the money for something you want?
If you plan to access your savings to pay off debt, consider whether the amount you can access will really help you solve your debt problem and avoid borrowing more in future?
Give all these things some thought before you take money from the savings pot – as taking it will impact your circumstances at retirement.
