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Cape Town - As ordinary people feel the pressure of rising petrol, food and electricity costs, long-term savings plans sometimes fall by the wayside.
"Saving for the long term seems less important to consumers and some find it difficult to resist the temptation to cash in on their long-term savings," says Sylvia Walker, market development manager at Old Mutual.
“Consumers should not consider cashing in on their long-term savings as an option to access money when faced with difficult economic decisions."
People need to make informed choices, saysWalker.
“Get all the facts. When your financial situation changes, it is important to seek the advice of a financial adviser or financial planner before making any rash moves, especially when dealing with financial pressures,” recommends Walker.
“It’s all about priorities. Some people are failing to consider the impact of their living for today lifestyle in terms of their future financial well-being. Key is to strike a balance between making ends meet today and saving for the future."
When times are tougher, it is vital that people reassess their priorities.
"Importantly, consumers should not lose sight of vital aspects such as making provision for retirement, healthcare needs and risk protection for life style changing events," she said.
"Financial advisers will help to structure an action plan to create a healthy financial portfolio that will enable you to retire comfortably whilst still living in your means today."
It is a fact that South Africa does not have a strong savings culture. According to the Association for Savings and Investment SA, the country’s households only save 1.7% of gross domestic product.
It is therefore not surprising that millions of South Africans find themselves in the debt trap.
"The reality is that many South Africans who appear to be doing well today may find they are living on little more than the government pension at retirement," she said.
According to Walker, cashing in on long-term savings should be the very last resort.
If you terminate a policy or withdraw from a retirement fund early, you will lose any associated disability and life cover. Disinvestment charges will also reduce the amount you receive.
"Also, remember that disinvesting from your savings policy will have a further negative impact in the sense that you will miss out on the power of compound interest," she said.
"Compound interest means earning interest on the interest already earned, growing your capital substantially."
If you need money urgently, rather investigate other options relating to your savings and investments:
* If you cannot afford to increase your monthly contributions, you may be able to opt out of automatic premium increases.
But remember, removing the premium update facility permanently can result in a massive erosion of the purchasing power of your savings because you will not keep up with inflation.
* You can apply for a loan against your policy. However, there may be costs involved.
Typically money is needed to register the loan and to cover the monthly administration fee. Interest on the loan will accumulate at commercial rates. (This facility is not normally available from retirement funds.)
* You can cede your policy (but not a retirement fund) as security to cover a loan from your bank. If you go this route you should try to ensure that you get the best possible interest rate from the lender.
The debt will have to be serviced for as long as the capital remains unpaid.
* You may be able to make a policy or retirement annuity fund paid-up, which means you do not make any further premium payments. Depending on the circumstances you may be able to reinstate your investment at a later stage when you can afford to do so.
Make sure that you find out what the impact will be on your policy. It can sometimes be severe.
* You may be able to make a partial withdrawal from a policy (but not a retirement fund). This would help you to restore the value of your savings once you are in a better financial situation.
However, there are likely to be once-off administration costs involved, and the value of your policy will be reduced. This will include a reduction in the amount of associated life and disability cover, if any.
These are tough alternatives, especially if taken without advice from a financial adviser or financial planner.
Do go to the trouble of finding a trusted adviser, who can help you over the highs and lows and put together a realistic financial plan that will meet your needs now and in the future, advises Walker.
If you are considering withdrawing from a retirement fund, like a pension fund or retirement annuity fund, you will need to know what the rules of the fund allow, according to Walker.
”All of us need to give serious consideration to the importance of matters like setting up household budgets, settling debt, changing existing wills or drafting new wills," she says.
"Also identify and address other needs such as life and disability cover which provide essential financial protection for ourselves and our dependants,” says Walker.
- Fin24
*Add your voice to our Women's Wealth Issue and help empower others this Women's Month.
Write a guest post
Share your coping tips
Ask the experts
"Saving for the long term seems less important to consumers and some find it difficult to resist the temptation to cash in on their long-term savings," says Sylvia Walker, market development manager at Old Mutual.
“Consumers should not consider cashing in on their long-term savings as an option to access money when faced with difficult economic decisions."
People need to make informed choices, saysWalker.
“Get all the facts. When your financial situation changes, it is important to seek the advice of a financial adviser or financial planner before making any rash moves, especially when dealing with financial pressures,” recommends Walker.
“It’s all about priorities. Some people are failing to consider the impact of their living for today lifestyle in terms of their future financial well-being. Key is to strike a balance between making ends meet today and saving for the future."
When times are tougher, it is vital that people reassess their priorities.
"Importantly, consumers should not lose sight of vital aspects such as making provision for retirement, healthcare needs and risk protection for life style changing events," she said.
"Financial advisers will help to structure an action plan to create a healthy financial portfolio that will enable you to retire comfortably whilst still living in your means today."
It is a fact that South Africa does not have a strong savings culture. According to the Association for Savings and Investment SA, the country’s households only save 1.7% of gross domestic product.
It is therefore not surprising that millions of South Africans find themselves in the debt trap.
"The reality is that many South Africans who appear to be doing well today may find they are living on little more than the government pension at retirement," she said.
According to Walker, cashing in on long-term savings should be the very last resort.
If you terminate a policy or withdraw from a retirement fund early, you will lose any associated disability and life cover. Disinvestment charges will also reduce the amount you receive.
"Also, remember that disinvesting from your savings policy will have a further negative impact in the sense that you will miss out on the power of compound interest," she said.
"Compound interest means earning interest on the interest already earned, growing your capital substantially."
If you need money urgently, rather investigate other options relating to your savings and investments:
* If you cannot afford to increase your monthly contributions, you may be able to opt out of automatic premium increases.
But remember, removing the premium update facility permanently can result in a massive erosion of the purchasing power of your savings because you will not keep up with inflation.
* You can apply for a loan against your policy. However, there may be costs involved.
Typically money is needed to register the loan and to cover the monthly administration fee. Interest on the loan will accumulate at commercial rates. (This facility is not normally available from retirement funds.)
* You can cede your policy (but not a retirement fund) as security to cover a loan from your bank. If you go this route you should try to ensure that you get the best possible interest rate from the lender.
The debt will have to be serviced for as long as the capital remains unpaid.
* You may be able to make a policy or retirement annuity fund paid-up, which means you do not make any further premium payments. Depending on the circumstances you may be able to reinstate your investment at a later stage when you can afford to do so.
Make sure that you find out what the impact will be on your policy. It can sometimes be severe.
* You may be able to make a partial withdrawal from a policy (but not a retirement fund). This would help you to restore the value of your savings once you are in a better financial situation.
However, there are likely to be once-off administration costs involved, and the value of your policy will be reduced. This will include a reduction in the amount of associated life and disability cover, if any.
These are tough alternatives, especially if taken without advice from a financial adviser or financial planner.
Do go to the trouble of finding a trusted adviser, who can help you over the highs and lows and put together a realistic financial plan that will meet your needs now and in the future, advises Walker.
If you are considering withdrawing from a retirement fund, like a pension fund or retirement annuity fund, you will need to know what the rules of the fund allow, according to Walker.
”All of us need to give serious consideration to the importance of matters like setting up household budgets, settling debt, changing existing wills or drafting new wills," she says.
"Also identify and address other needs such as life and disability cover which provide essential financial protection for ourselves and our dependants,” says Walker.
- Fin24
*Add your voice to our Women's Wealth Issue and help empower others this Women's Month.
Write a guest post
Share your coping tips
Ask the experts
