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A Fin24 user wants to resign from her job, but is not sure what she can withdraw from her provident fund. She writes:
I want to resign from work. My pension/provident fund amount is about R600 000.
Will I get paid out the full amount? I would like to use R200 000 from that and invest the rest.
Nico-Louis Minnie, head of wealth platforms at Liberty Investments, responds:
When you move between employers you are allowed to withdraw the full amount from your provident fund or only a portion of, if you so wish.
Therefore, you can withdraw the R200 000 you need now and preserve the remaining R400 000.
However, this is generally not advisable for two main reasons. Firstly you will lose out on a lot of compound growth, which will be lost forever.
If you invest R1 000 per month, say, in a pension fund, by the time you have been investing for 25 years the monthly growth will be 10 times what you contribute.
Making a withdrawal will wipe this out to a large extent.
Secondly, the withdrawals taken prior to retirement will all be taken into account when calculating the tax you pay at retirement.
Since these are cumulative, you would be paying much more than if you had preserved the full amount.
- Fin24
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