Withdrawal of Pension fund - A wise decision?

[Wall]

Hi guys,

I'm currently looking for a new job and I was thinking about what to do with my pension fund should I get a new job.

The fund is currently on 125000. From my understanding, the first 22500 is tax free. The remainder portion is taxed at 18.5%.

If I Withdraw my pension, I can expect a payout of 100K. I was originally thinking of drawing my pension fund and using that as a deposit for a house when I get a new job... ( Plan on getting married in 2-3 years)

However, I'm not sure if that's the wisest decision in the long term ( Investment strategy, not marriage )?

Thoughts?

 

[Johand]

Hi guys,

I'm currently looking for a new job and I was thinking about what to do with my pension fund should I get a new job.

The fund is currently on 125000. From my understanding, the first 22500 is tax free. The remainder portion is taxed at 18.5%.

If I Withdraw my pension, I can expect a payout of 100K. I was originally thinking of drawing my pension fund and using that as a deposit for a house when I get a new job... ( Plan on getting married in 2-3 years)

However, I'm not sure if that's the wisest decision in the long term ( Investment strategy, not marriage )?

Thoughts?

No. Even if you can get money out tax free... don't do it. That money is specifically saved for retirement. Also investing in a primary residence is not "saving for retirement" no matter what the argument is. Put that money so far away that you will never, ever see it, smell it or hear of it until you retire. I suggest dumping it in a Unit Trust RA with Allan Gray (make sure you do it directly and not through and adviser and then you will not pay any commission).

 

[senyetse]

I would not withdraw the pension. Rather save a while longer for that deposit.

 

[DJ...]

No. Never, ever touch that money. Find any alternative to avoid touching your pension...

 

[Compton_effect]

Preservation fund. RA, whatever. Just invest it.
I once withdrew the pension when leaving a company - still sorting out that tax headache 6 years later.
You're not married, in your 20's? Put it aside now, plenty of time to spend later, and things change - that house might be a hindrance in 4 years. Follow my advice - I didn't and am still kicking myself.

 

[Wall]

No. Even if you can get money out tax free... don't do it. That money is specifically saved for retirement. Also investing in a primary residence is not "saving for retirement" no matter what the argument is. Put that money so far away that you will never, ever see it, smell it or hear of it until you retire. I suggest dumping it in a Unit Trust RA with Allan Gray (make sure you do it directly and not through and adviser and then you will not pay any commission).

I could possibly carry it over to my new job? ( if they offer a pension fund)

The thing is, nothing scares me more than paying a debt for 20 years! It's nuts, I would love to be in a position to have a free standing debt free property in say 10-12 years. Would all that interest saved up make up for the loss of withdrawing my pension fund early?

I honestly don't know...but I my gut is saying don't touch my pension fund as compound interest in later years will be quite noticeable...

 

[Wall]

No. Never, ever touch that money. Find any alternative to avoid touching your pension...

Why is it frowned upon to withdraw it early? Sorry, I might be daft here but what is the reason for everyone saying no to an early withdrawal?

 

[SauRoNZA]

Don't touch it.

Move it to a preservation fund or your next employer's Pension Fund and leave it alone.


But get a new job first before building pipe dreams anyway.

 

[hellfire]

'nuff said

 

[Tman*]

If you do something wise with it, for example buying a house, it is really something to consider. If you are however looking to spend it on a new car or similar - avoid at all cost.

This is money saved for you old day, any decision you make will have an impact when you retire. Unless you can seriously commit to save extra towards your pension by putting down a bigger deposit on your house - dont even consider it.

 

[Wall]

Don't touch it.

Move it to a preservation fund or your next employer's Pension Fund and leave it alone.


But get a new job first before building pipe dreams anyway.

Sure, I'm just thinking ahead. Put it this way, I can't see myself at my present job for another year

 

[SauRoNZA]

Why is it frowned upon to withdraw it early? Sorry, I might be daft here but what is the reason for everyone saying no to an early withdrawal?

Because most people want to withdraw it to blow it on something else that isn't worthy of being called an investment.

That money pretty much guarantees that you can live pretty happily when you retire.

Even at "only" R125 000 if you are 40 years old now it will grow into R425 000 if it manages to only make 5% interest.


It's all about compound interest and you want to leave it in there for as long as possible with as much money together as possible. So best bet is to throw it in with your new Pension Fund so you have a larger pool of interest.


The younger you are the better. It pretty much guarantees you won't have to work and if you put enough of it together you can even retire early.


Number one reason we have so many old people relying on their children or the government to look after them at 65+ is because they made bad decisions like cashing out their pension when they were young to put it into some get rich quick scheme or make another plan with it.

 

[Wall]

Because most people want to withdraw it to blow it on something else that isn't worthy of being called an investment.

That money pretty much guarantees that you can live pretty happily when you retire.

Even at "only" R125 000 as per the OP if he is 40 years old now it will grow into R425 000 if it manages to only make 5% interest.


It's all about compound interest and you want to leave it in there for as long as possible with as much money together as possible. So best bet is to throw it in with your new Pension Fund so you have a larger pool of interest.

Would that interest lost not be compensated by paying your house off earlier? ( saving the interest you give to the banks?)

 

[DJ...]

Why is it frowned upon to withdraw it early? Sorry, I might be daft here but what is the reason for everyone saying no to an early withdrawal?

Just work out the compound interest for yourself to have that "light-bulb-switching-on" moment. And then there's the tax issue as well. It's just not worth it...

 

[creeper]

Hi guys,

I'm currently looking for a new job and I was thinking about what to do with my pension fund should I get a new job.

The fund is currently on 125000. From my understanding, the first 22500 is tax free. The remainder portion is taxed at 18.5%.

If I Withdraw my pension, I can expect a payout of 100K. I was originally thinking of drawing my pension fund and using that as a deposit for a house when I get a new job... ( Plan on getting married in 2-3 years)

However, I'm not sure if that's the wisest decision in the long term ( Investment strategy, not marriage )?

Thoughts?

NO.

Let me give you an idea:

You will be getting approx. R106 000. You will spend it. You will be giving the tax man money where you could have invested it.

So, if you keep the money in some like a preservation fund, R125 000 @ 10% over 30 years will become R 2 100 000.

So, decide. Spend your money now, or save it.

Forgot to mention. That R19 000 you pay to the tax man. @10% over 30 years will become R 280 000.

House prices are predicted to have slow growth for the next few years. Also, if the asset doesn't generate an income (renting out a house), it will only grow in capital, which in real value is about 1% currently (need to confirm the numbers).

 

[DJ...]

Would that interest lost not be compensated by paying your house off earlier? ( saving the interest you give to the banks?)

In the long-run? No, not at all. The effects of compounding your interest far outweigh the paying off of a single, low-interest debt in the same time-frame or smaller...

 

[SauRoNZA]

Your house is a riskier investment and could go horribly wrong in many different ways.

Wouldn't it be better if you paid your house off alternatively and by the time you reach 65 your have a house bought and paid for as well as R425 000 in the bank which covers your regular costs?

 

[Wall]

Thanks for the advice guys, I really appreciate it.

I think the right decision is to reinvest the money and not touch it.

 

[SinghDude]

Take the 100 grand and buy MTN Zakhele shares on the 25th. You will double it before year end. :erm:

 

[Wall]

Take the 100 grand and buy MTN Zakhele shares on the 25th. You will double it before year end. :erm:

We've that this discussion before