Your Choices Will Affect Your Retirement

YOUR CHOICES WILL AFFECT YOUR RETIREMENT

The below example shows the impact of the CHOICES that Lisa MADE throughout her career.

Like all of us, Lisa's life is a journey and is full of ups and downs. When changing employers, the option of taking everything in cash is very tempting, as human nature kicks in and we start thinking about what we can do with the money. It is easy to focus on short-term satisfaction rather than weighing up the long-term benefits.

Lisa was faced with the following important choices:

  • Whether to withdraw or preserve her retirement savings whenever she changed jobs.
  • Whether to increase her monthly contribution rate regularly, or not.

Her choices make a big difference to how much her monthly pension will be when she retires.

OUTCOME 1      R15 367 monthly

If Lisa preserves her funds when she changes jobs (except for the one time when she makes a partial withdrawal to study) and increases her retirement contributions regularly, she’ll get a monthly pension of R15 367 in today’s money when she retires.

OUTCOME 2      R11 902 monthly

If Lisa preserves her funds whenever she changes jobs (except for the one time when she makes a partial withdrawal to study) but doesn’t increase her contributions, she’ll get a monthly pension of R11 902 in today’s money when she retires.

OUTCOME 3      R4 609 monthly

If Lisa never preserves (except at her last job change when she’s older, approaching retirement and realising the importance of preserving) but increases her contributions regularly, she’ll retire with a pension of R4 609 in today’s money.

OUTCOME 4      R2 804 monthly

If Lisa never preserves until her last job change, at age 55, and doesn’t increase her contributions, she’ll retire with a pension of R2 804 in today’s money.

THE TAX BENEFITS

This is how you will be taxed If you preserve your retirement savings, rather than withdraw THEM before retirement

When you retire, you can take a total of R500 000 of your retirement savings tax free.

However, all amounts you withdraw in cash (exceeding R25 000) before retirement will reduce this tax-free amount. The amount you can take in cash tax free all depends on your previous cash withdrawals from your retirement funds. How much you are taxed depends on how much you take and when you take it – see the tables below.