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Why you should not cash out your retirement fund

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When most of us think about our retirement, we consider lounging on the beach, playing with our grandkids or picking up a new hobby. Very few of us think we would still be working or struggling to make ends meet when we are in our senior years. Therefore we need to make sure to take care of our retirement funds to make sure that by the time that we are ready to retire we will be financially comfortable to do so.  

One of the reasons why people cash out on their retirement fund early is because they change jobs. A new job is an exciting change and new challenge that can mean the promise of career growth and a higher income; however it can also mean unexpected consequences for your retirement planning. You have three options on leaving one job for another if you have a company set-up retirement, provident or pension plan - you can cash in, you can transfer to another fund, or you can choose a combination of the two.

People typically change jobs between five and seven times throughout their lifetime, and one of the biggest retirement mistakes you can make is to cash in your pension plan when you move between jobs. Cashing in is very popular in South Africa, and many choose to cash out the retirement funds because they want to use it to pay off the debts. But using tomorrow’s money to pay off debts may not be the solution, as you will accumulate more debt once you need the funds, come retirement. In South Africa, 33% of retirees still have debt to repay once they've stopped working, and few can afford to retire because they have (mis)spent their retirement savings ahead of time. The option of cashing in your hard-earned retirement savings is an attractive one, but most people don’t realise the devastating effect it has on their long-term pension plan.

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