Here’s What to Consider First
Quitting is a term that stirs up a mix of anticipation and worry in people’s minds. It signifies a beginning, for most individuals out there; however before taking that step to access your pension savings early and cash out the money involved there are important aspects to take into account.
The Impact of Taxes
When you step down and opt to access your retirement fund as many others do as well when they decide to tap their pensions sooner than expected or needed—the tax authorities will come calling for their share of the pie. In South Africa for instance—up to R27 500 of your withdrawal is not subject to taxation; however, once you cross this threshold any amount beyond is game for the taxman’s slice of the pie. So if you were to withdraw R100 000 from your pension pot in this scenario; be prepared to shell out around R30 000 in taxes, on that sum. This pattern is mirrored across African countries where taking out retirement savings ahead of schedule can result in substantial tax consequences and penalties.
Assess all the available choices first
Before quitting and pulling out completely from your situation at work or, in a pension plan scheme assess all the available choices first. Is it possible for you to shift your retirement savings over to an employer-sponsored retirement account or maybe consider transferring them into a preservation fund instead? These alternative courses of action might present you with the opportunity to steer clear of tax implications while safeguarding the money you’ve set aside for your post-employment years. Relocating your pension funds to another employer’s retirement fund contributes to upholding one’s financial security in the long run.
Emotions and feelings to consider before exiting.
Quitting and taking out your retirement savings isn’t simply a matter of money—it also involves emotions and feelings to consider too. The peace of mind that accompanies having a retirement fund should not be overlooked in this decision-making process. Imagine the emotions you might experience once that layer of protection is no longer there to rely on. Numerous individuals have shared their remorse for accessing their pension funds due to the subsequent loss of financial stability it brought about.
Take the story of Kwame, a former bank manager in Accra. When he left his job, he decided to withdraw a large portion of his pension to start a business. Initially, the excitement of his new venture masked any concerns, but within two years, the business failed, leaving him without financial stability. Reflecting on his decision, Kwame shared how he wished he had considered the emotional security his pension provided. The temporary relief wasn’t worth the long-term financial stress he now faces. His experience is a cautionary tale for many facing similar choices.
Consult with an Expert
Speak with a financial advisor to get personalized guidance that fits your unique situation. They can help you weigh the pros and cons, ensuring you make an informed decision.
“Seeking professional advice was a game-changer for me. When I first started managing my pension fund, I was overwhelmed by the options and risks. A financial advisor helped me create a strategy aligned with my goals,” Bena shared.
In the UK, many retirees rely on advisors to maximize their pension savings and investments for long-term security. This expertise is becoming increasingly essential in Africa, where the financial landscape is evolving, and more individuals are realizing the benefits of professional guidance to secure their futures.
Related Article: Crafting Your Optimal Pension Pot in Kenya
Conclusion
Ultimately quitting your job and taking out your retirement savings is a choice to make. Think about the tax consequences your long term financial stability, other options available and how it may affect you emotionally.. Remember to consult with a financial expert. Your future self will appreciate it.
