To enjoy the full Mail & Guardian online experience: please upgrade your browser
30 Apr 2010 10:59
My wife is leaving her current job to start her own business. How can she invest it her retirement fund? What is the difference between a preservation fund and a retirement annuity? asks Charles.
There is always the temptation to cash in your pension fund when you change jobs, especially if you are starting your own business and you need the money.
The impact of this decision on your retirement funds is enormous, not only because of tax but because the funds will not benefit from compounding growth over time.
An interesting fact: a quarter of your final retirement lump sum comes from your first five years of retirement savings—so if you cash that in you will reduce your final retirement savings by 25%.
Some people argue that depending on the value of the retirement fund, it may be worth taking the funds, paying the tax and then investing it a lower cost, more flexible structure.
Preservation Fund vs Retirement Fund
One thing your wife needs to keep in mind is that she will lose the life and disability cover provided by her company. She could select an RA that includes some of this cover or alternatively her employer’s insurer may allow her to keep her policy without undergoing further medical testing.
Your wife should speak to her current company’s retirement fund provider who would be able to provide her with more detailed advice.
Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information.
Create Account | Lost Your Password?