To use the pension or not

[pension]

Ok

I'm leaving my current job with a pension of R220k.

I have a personal loan of R80 000 (8%) and Credit Card Debt of R 15000 (8%) and another account of R9000 (21% interest)

Monthly repayments total approximately R3500 for all the account.

I'm thinking of using a portion of my pension to settle the loans and then use the R3500 to invest in an equity fund or direct equities and an RA

Is this a good idea? I do know that there are tax consequences when cashing your pension as well as compounding etc

My new job will allow me to add a further R100k to my pension in 2014

 

[Budza]

Hyell. That's too much debt

Out of interest, what car do you drive?

Trying to understand, not judge...

I'd leave the pension and cut all other expenses where possible to nail that debt ASAP.

 

[AlmightyBender]

no, just no. Don't do it.

 

[shogun]

So it's none of our business what you do with it, but having opened the door...

No... never use pension money to settle debt now. Just don't do it. It might make sense from an immediate debt repayment point of view (interest rates and all), but it makes no sense from a future financial security point of view.

My suggestions is to pay off your current debt as you would have if the pension money didn't come through. More painful now, less painful in the long term.

I have no comment on where to invest the pension money. I just know that settling current debt means that money is not available when you will really need it down the line. If you think you need it now, wait until it really matters and see how you feel then.

 

[F1 Fan]

I would pay off those debts with pension money, only if you can control your spending afterwards. Judging by the debt you currently have, that does not look likely. Also, how did you calculate that you would get another 100k in 2014?

On a side note, how does a company (corporate) contribute to your pension? If you are paying in R1000 a month, how much would they pay in?

 

[pension]

OK I needed the debt to do renovations on my house. I used to get 6% but this will now go up after leaving the bank.

If I contribute R1 333 they will contribute R2 666

 

[supersunbird]

While I don't have your age that R220 000 can easily represent R3.5 to R4 million rand in 20 years time if allowed to just sit somewhere adequate and grow. Its name is even pension money, not settle-debt money.

After tax you'd probably have like around R150 000 (if my calculations are remotely correct) which will leave you with around R40 000 after settling the debt. Rather put that the pension money into a RA and work on another plan to work down your debt starting with the R9000.

 

[F1 Fan]

OK I needed the debt to do renovations on my house. I used to get 6% but this will now go up after leaving the bank.

If I contribute R1 333 they will contribute R2 666

Ah, that changes things. Personally, I believe in securing your property rather than having a big retirement fund. I would rather put extra money into a bond than a fund, but I feel that way only because I know I will not touch that money. So you have to be disciplined in that. If you know, after settling the debt you not just going to rack up another huge bill, then I don't see the problem.

Do all companies pay double pension?

 

[pension]

My Idea was to keep R110 000 straight into another pension to avoid any tax the balance of R110 000 less tax can settle the outstanding debt.

This will atleast preserve some of the capital.

 

[creeper]

Let's do the sums:

1. If you don't pay out your pension:

0% tax. So you have R220k. Growth at 10%, will provide you R570 000 in 10 years.

2. Pay out your pension.

30% tax (Too lazy to find out if it is 30% or 35%). R154 000 at 10% over 10 years = R 400 000

If you use the extra amount (inc in your salary) to pay off the most expense debt first, then the lower ones, I promise you, you will save more in keeping your pension than the interest you will pay on the loans. You don't state the personal loan or 'other account' time period for payment. So, it is difficult to work out exactly.

Remember. If you pay an extra R1000 into the 21% account, you will pay it off quickly. Assuming you are paying R9000 off @ 21% in 12 months, you are paying R850 per month. Pay off R1850 per month, your number of periods are 5 months. CLOSE THAT ACCOUNT. Then you'll have R1850 to pay off the personal account quicker. Assuming again you need to pay it off in 36 months. Your payment per month is about R2500. Add R1850 to it, you'll pay it off in 19 months (note, a bit more, due to the first 5 months not being taken into account).

The other problem is you will pay off the debt, but make more debt again if you pay out your pension. It is human nature. If you apply financial prudence for a year, there is a lesser chance to make more debt as it as your lifestyle would have been adapted.

 

[pension]

Do all companies pay double pension?

Im not sure with regards to pensions, some pay more some less, it also depends how you structure it

 

[F1 Fan]

While I don't have your age that R220 000 can easily represent R3.5 to R4 million rand in 20 years time if allowed to just sit somewhere adequate and grow. Its name is even pension money, not settle-debt money.

After tax you'd probably have like around R150 000 (if my calculations are remotely correct) which will leave you with around R40 000 after settling the debt. Rather put that the pension money into a RA and work on another plan to work down your debt starting with the R9000.

To me, I think 4mil would be worth nothing in 20years time. Well, not nothing but you get what I mean. I would pump alll that money into my homeloan to pay off my house. Once the house in paid off, it's mine. Then I would buy an investment property.

 

[supersunbird]

To me, I think 4mil would be worth nothing in 20years time. Well, not nothing but you get what I mean. I would pump alll that money into my homeloan to pay off my house. Once the house in paid off, it's mine. Then I would buy an investment property.

Well, 4mil is better than 0 mil, he/she will never be able to make it up easily in future earning unless saving 30% of income for retirement.

Yes, put all of it in a one asset with a return of whatever the home loan interest rate is... very risky.

 

[F1 Fan]

Well, 4mil is better than 0 mil, he/she will never be able to make it up easily in future earning unless saving 30% of income for retirement.

Yes, put all of it in a one asset with a return of whatever the home loan interest rate is... very risky.

You forgetting that you save by purchasing the sooner rather than later and you could possibly get a rental income. Perhaps it is risky, but possibly more beneficial?

 

[Compton_effect]

Three rules in work:
1.Always get it in writing first.
2.Never accept a counter-offer.
3.Never ever touch your pension.

 

[supersunbird]

You forgetting that you save by purchasing the sooner rather than later and you could possibly get a rental income. Perhaps it is risky, but possibly more beneficial?

Property is all good and well, I have a rental unit myself, but only after contributing at least 15% of CTC to a retirement fund of some kind and it has to stay there.

 

[Dr Who]

My suggestion ( without doing any workings )

1) If you in debt and stressing each month, naturally your lifestyle will adjust. Even if you have no will power
2) If you debt free and a nice little offer comes along - will you be able to say no ?

I am one of the lucky few who is a good saver, but even I forget how to save and waste money on stupid things.

 

[SuperVarkie]

Well the pension table are as follow for 2012-2013.

R0 - R22500 0%
R22501 - R600000 18% amount above 22500
R600001 - R900000 R103950 + 27% amount above R600000
R900001 + 184950 + 36% amount above R900000

The Option I would go for is putting the pension Funds In to a Preserver fund.
The Preserver fund allows you to make 1 withdrawal so I would withdraw just what I need to pay my debt off.
The tax table that I gave you will only apply to the fund that you are withdrawing from the preserver fund.
when I pay my debt off I would invest in 2 different investment ( fund that are free from my debt is paid off)
1 I would work out what my tax deduction allowed amount is on a RA and invest that amount in the RA fund.
2 The rest I will invest in an end term tax free investment. (Endowment investment)

Hope that helps

 

[AlmightyBender]

To me, I think 4mil would be worth nothing in 20years time. Well, not nothing but you get what I mean. I would pump alll that money into my homeloan to pay off my house. Once the house in paid off, it's mine. Then I would buy an investment property.

All eggs in one basket...

 

[supersunbird]

Also not to be forgotten, what you take out now diminishes the tax free lumpsum you can take out at retirement (currently R315 000, will be more then). So its another negative thing.