Yesssss! We've just told you the great news that you have just landed yourself a brand new job at the company of your dreams with a higher paying salary. We send you the letter of employment and you frantically sign your life away.
1 month comes and goes at your new desk and the previous company sends you your provident fund statement with that lucrative total balance asking you if you would like to cash-out the funds or would you would prefer to transfer the funds to the new employer's provident fund scheme. You're dead broke, SAA and Eskom are broke and so is the South African Government as per Tito Mboweni state of the nation budget speech. No, don't even think about lending money from your Mother-in-law. We've just hit a recession as a country according to Stats SA, due to our poor economic growth that contracted by 1.4% in the fourth quarter of 2019. The coronavirus outbreak around the world has also seen the JSE all share index bleed 11% in a week – the fourth biggest weekly loss since 1978.
In a nutshell the South African economy is tough and you're up to your eyeballs with debt you've accumulated over the years from that credit card or school fees, bond repayments and that holiday you took to Europe that cost you an arm and a leg due to the strength of the Euro. What do you do in relation to your Provident Fund?
Reasons NOT to touch your Provident Fund after changing jobs:
The reality is, every time you cash out your provident fund you are actually stealing from the older person you will become one day.
The tax deductions that you incur for withdrawals are rather high. The first R25 000 is tax free, anything after that, you're up against the taxman. For amounts between R25 001 – R660 000 you're going to pay +18% tax. From R660 001 – R990 000 you will pay +27% tax and for withdrawals of more than R990 000 you will be paying +36% tax.
If you touch your provident fund, you will be losing out on the power of compound interest which takes years to benefit from.
After the age of 35, you might not have enough time to recover from more withdrawals as you will be retiring between ages 60 – 65. This might hamper your earning potential after retirement.
You might fall into the temptation of unnecessary expenditure. Be it spending money on unplanned holidays, buying unnecessary gadgets or sheer wasteful expenditure.
Reason to consider cashing out your Retirement Fund:
In our ailing economy, retrenchments are a sad reality. If you find yourself in this precarious position, your provident fund can come in very handy until you find your next job.
Paying off your house or car might also be a good idea to cash-out your provident fund as it brings down your overall interest and gives you a financial breather. School fees are debatable…we'll leave that hot potato for another day.
If you get fired…look you don't have many options mate but to access your provident to navigate those financially treacherous seas that might drown you.
If you're unsure about your decision go ahead and speak to your financial advisor.
For your next Great position for an even better provident fund, register your CV on www.communicate.co.za. or call us right now for positions in Engineering, Finance, IT, Freight and Contracting.