Newsletter • Quarter 2 • 2024
STAY INVESTED
Accessing your savings before retirement will negatively impact your future.
Loss of compound interest
If you withdraw, you will miss out on the power of compound interest, often referred to as the 'eighth wonder of the world'. Compounding means that you earn interest on your initial contributions PLUS you earn interest on your interest.
EXAMPLE
- You plan to retire at age 63.
- At age 33 you withdraw R50 000 from your retirement savings.
- You could lose out on up to R870 000, which would have been used to provide you with an income during retirement. That’s a big difference.
Staying invested is key
Wherever possible, you should avoid accessing your retirement savings. This will significantly impact the amount of money you will have to provide you and your family with an income once you retire.
Making emergency withdrawals
You may have an emergency or valid reasons why you need to access your retirement savings.
Before making a withdrawal, consider the below points:
1
Is it something important? If yes, do you need the full amount or could you reduce it?2
You will be taxed on the withdrawal. How might the withdrawal amount affect your overall tax liability for the year?3
How is the withdrawal likely to affect the long-term savings for your retirement?4
Remember to talk to a certified financial adviser before making a withdrawal.
Set up an emergency fund
When you have unexpected expenses or emergencies, it is a good idea to have an emergency fund to provide you with access to money and prevent you from abandoning your long-term retirement goals.
If you do not have an emergency fund, direct some of your income into a separate bank account or an investment vehicle that is easily accessible and earns you interest.
If you need assistance in setting up an emergency fund, talk to a certified financial adviser.
You should aim to accumulate three to six months’ worth of your salary for emergencies.
Remember
- It is crucial to preserve your retirement savings so that you can benefit from compound interest.
- In tough times, seek guidance from a certified financial adviser to make the best decisions for your short- and long-term goals.
- Only access your retirement savings as a carefully considered last resort.
- Every withdrawal you make from your retirement savings before you retire, will be taxed.