Every time you cash in your pension fund you blow a huge hole in your provisions towards your financial freedom in the future. Financial freedom takes place when your investments can provide you with a sustainable income for the rest of your life. Your pension is the most important contribution to this as it is probably the biggest investment you’ll make over the longest period of time.

Cashing in your fund has dire consequences that you should be well aware of:

Assuming you save 30 years to retirement and you cash in after the first 10 years. The monthly amount needed to catch up to the same value at retirement is 3 times. If you cash in after 20 years, the amount needed to catch up is R10 times.

You also give up tax payable to SARS which if left in your fund boosts the compounding effect on your money. The bigger the amount the bigger the compound over time.

If you cancel your pension to pay off debt then you just are kicking the can down the road. Having too much debt in the first place is a result of you living beyond your means. Cashing in your pension is effectively turning off your income at retirement. If you cannot afford your lifestyle now whilst you are earning a salary you certainly won’t afford to live when you retire. You have to bite the bullet and pay off your debts with the income you earn after savings. It’s the only way to arrive at financial freedom in the future.

Retirement funds are inalienable. Which means your creditors cannot touch the money. This is a useful consideration for those wanting to go into business for themselves and intending to cash in their pension fund as an investment into their business. You would do well to use the bank’s money instead of yours. You get the best of both worlds. Your retirement funding stays on track and if the business goes bust then you still have your funds for the future.

It stands to reason that cashing in your pension fund is not the first thing you do when you leave your job. On the contrary, it should be a measure of last resort.

So how do we as South Africans benefit from this illustrious event? It becomes an opportunity for us to reflect on ourselves and ask questions pointing to getting our own house back in order.

Just like the approach to a financial plan, we need to ask the questions:

To get our own house back in order we need to recognise that we are lagging behind in terms of economic fundamentals. South Africa is lagging as an economic leader in Africa especially as the region has been growing around 2-3% faster than the rest of the world.

Reserve Bank’s leading business economic indicator for March was 1,6% after a drop in February of 2.3%.

The reserve bank has also hinted that the interest rate is likely to move upward within the next few meetings.

The rand has weakened to R12,58 to the dollar.

The economy has shrunk in the last quarter to a GDP of 1,3% quarter on quarter from a previous quarter of 4,1%.

Unemployment has risen to 26,4%. The worst in 12 years.

We don’t have enough electricity to keep up and…and… and…

We need real sustainable growth to bring us back to an economic powerhouse in Africa.