Withdrawal of Pension fund - A wise decision?

[SinghDude]

We've that this discussion before

or treble it.


There will be alot of desperate existing shareholders who will sell cheap. You will fetch a premium in a month .

 

[Freaksta]

As said above please don't do it! It is not worth it! That is a nice little egg that you have and if you leave it, it will grow to a nice sum as shown above! You will manage without it for a house.

 

[Johand]

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

No. A couple of reasons 1) You will just be tempted when you move again. 2) Company Pension and Provident Funds are opaque like crazy. It is actually not possible to see what is going on there. And because it is not their money your employer really does not care to take proper care of your money. They will do their best but they won't watch it because that is what the admin company is *suppose* to do. In two of my jobs there have been problems with provident fund contributions. Currently the bulk of my Provident Fund is stuck at AON until the entire Dynamiq-ue/AON mess is sorted out. We are currently busy suing the trustees. http://www.iol.co.za/business/perso...y-for-funds-admin-mess-1.1557007#.UoO9IPmnr9U

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.

I agree the debt is scary... but compared to what? I rather have debt when I am earning *and have the potential to earn money*. Because once you are unable to earn money you are pretty much stuffed. Besides... interest on a house does not compound (unless you do something stupid) and inflation takes care of the bond repayments later on. The reason why residential property have been a good long term investment for a lot of people is because it is one of the few opportunities where people can leverage themselves - and not because the price growth of houses is the best of all asset classes (except for the bubble years). It is just impossible to buy a million rand of shares on a loan of 8.5%.

So I am slightly scared of debt but I just bought a house and I think I will follow the following strategy:
1) For the first two years I want to pay double the capital amount - it means I pay my house off twice as fast in that period. Example: On R1mil with a interest rate of 8.5% your payment is R 8700 but the interest portion is R6670 .. the capital payment is only about R2k. So if you only pay R2k a month extra in the only the first two years you are paying off twice as fast (your loan duration will in fact reduce by 26 months).
2) From year three onwards I will increase my annual payment with inflation. This means up I will actually finish in 10 years.

The rest of my money ... I will buy shares. Save up until I have R10k and buy shares in a single company for that amount. And leave it. And the next time I have 10k I will buy shares in a different company.

My strategy might change... but this is my current plan. The idea is to leverage myself a little bit, without taking on too much risk But also diversify and not have all my eggs in one basket. I of course have separate pension fund (for food and medical bills when I grow old )

Would all that interest saved up make up for the loss of withdrawing my pension fund early?

No one can predict the future but in most cases in the past the answer would have been "No, the interest saved does not make up". Home loans on average on the long term had a lower interest rate than the market has grown. Short-term it is quite possible to get a slight jolt (that is why everything I say apply strictly for the below 45 year old crowd ). Of course not all RA/provident fund/pension fund money is invested in shares but the story holds for the general case.

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...

It is not even what the pension will be worth. In all reality nobody is saving enough because we might end up living a lot longer than anybody thought. And medical inflation is much, much higher than normal inflation. I think people should aim to be financially independent when they retire and then still have pension/provident fund on top of that. I cannot see the future but I am pretty sure being old is going to be frekkin expensive.

 

[bekdik]

Find a reliable financial adviser. He will all of your circumstances into account.

 

[Johand]

Find a reliable financial adviser. He will all of your circumstances into account.

Yes. But also do not blindly listen to your adviser. Double-check and understand everything he says. They work on commission and a lot of RA money has been "stolen" by "advisers" giving bad advice so they earn commission. Make sure he discloses exactly how much he is getting paid for letting you buy a product.

If possible do your RA yourself (let him advice you that you need one, but then just go direct if you must hear him spell it out). Some of these products have 2% to 4% commission on gross premium. That is money you will never see again.

 

[geezer]

Company Pension and Provident Funds are opaque like crazy. It is actually not possible to see what is going on there. And because it is not their money your employer really does not care to take proper care of your money. They will do their best but they won't watch it because that is what the admin company is *suppose* to do.

We are very satisfied with the way our company's pension fund is managed. We get regular updates about the growth, whether it is negative or positive as well as audited yearly statements. But in general, the fund is doing very well. Just in the last 6 months my pension has grown with more than R400 000, with just under R100 000 just the last month alone! If my pension keeps up with the trend of the last 5 years, my pension should be roughly on 16 million when I reach 60 in 10 years, and I will then decide if I should retire, or stay another 5 years up till 65.

Edit: I just had a look at the actual figures, and my pension grew with approximately R725 000 from January untill the end of October. That is an average growth of R72 500p/m, which is very good any anyone's books!

 

[Johand]

We are very satisfied with the way our company's pension fund is managed. We get regular updates about the growth, whether it is negative or positive as well as audited yearly statements. But in general, the fund is doing very well. Just in the last 6 months my pension has grown with more than R400 000, with just under R100 000 just the last month alone! If my pension keeps up with the trend of the last 5 years, my pension should be roughly on 16 million when I reach 60 in 10 years, and I will then decide if I should retire, or stay another 5 years up till 65.

We also used to get that. But that is the underlying fund that is reporting. And they are reporting on group sum invested. They are not reporting on your money specifically. Our underlying funds did pretty well too. It is just when they actually tried to reconcile everything they realized that they cannot correctly match the individual's money to the fund. The trouble is only ever detected when you try to put money in, or take money out.

 

[supersunbird]

As the others have said, NO!

Put it into a RA.

Cheap indexed fund one. 10x or the new very cheap on from Sygnia. You don't want to eat dog food when retired. Safe up house deposit money for a house deposit, this money is for retirement aka pension, its in the name of where its been saving up even lol.

 

[SinghDude]

there is also the weird reality of death. don't count your chickens before they hatch...
In essence one is gambling on enjoying a merry retirement... Most will not. With age comes lots of other issues.

Its important to be financially prudent ,but also to try and reap the benefits of hard work now.One has to strike a fine balance between enjoying life's pleasures and also being a bit of a scrooge .

not everybody has dependents that will enjoy millions when you dead, live,laugh,LOL.

 

[diabolus]

We also used to get that. But that is the underlying fund that is reporting. And they are reporting on group sum invested. They are not reporting on your money specifically. Our underlying funds did pretty well too. It is just when they actually tried to reconcile everything they realized that they cannot correctly match the individual's money to the fund. The trouble is only ever detected when you try to put money in, or take money out.

I guess that all depends on how your employer is handling the fund. My employer's provident fund is at Alexander Forbes, and i have a direct account with them and can get any info about my fund status anytime i want. So not sure what further "underlying" fund they can report on.

 

[Gaz{M}]

Paying off your house at 9% over 20 years will be far less beneficial than reinvesting your pension at 12% for 40 years.

So keep your pension.

 

[Johand]

I guess that all depends on how your employer is handling the fund. My employer's provident fund is at Alexander Forbes, and i have a direct account with them and can get any info about my fund status anytime i want. So not sure what further "underlying" fund they can report on.

Provident Funds have administrators which invest the money into an investment fund. The individual's money is only administered by the administration company - the investment fund only sees net inflows and outflows - they don't know who the individual investors are. If there are problems with administration you can loose a lot of money regardless of what happens with the investment fund. The actual Provident Fund has trustees that is supposed to make all the decisions about the fund. This is how all Provident Funds work and these trustees doesn't always make the best decisions (because it is not their money...) And Alexander Forbes is not necessary safe: http://www.iol.co.za/business/perso...-1.1044072?ot=inmsa.ArticlePrintPageLayout.ot.

 

[saturnz]

not really relevant but at the same time it could be argued it is relevant

Last year I was about to leave my job because they were wanting to deduct a pension. I had to submit a long document outlining my reasons but in essence it showed the deduction would severely prejudice my current wealth management strategy. I also showed how I actually generated a pension that I can live on in the next two years as opposed to waiting another 30 years before I reap the benefits- and who can guarentee that I will live for another 30 years.

Irrespective of the merits of the argument, it was strong enough for them to not deduct a pension from my salary and I continue to use my salary to achieve my wealth management goals.

I cringe when I read in the newspapers the horror stories beneficiaries relate of losing all their money and being destitute as a result.