Changing jobs shouldn’t mean changing retirement goals

Published on 25th January, 2024 at 11:27 am

The Sanlam Benchmark research shows that, on average, South Africans change jobs about five to seven times during their working lives.

Landing a new job can be a life changer, bringing with it a lot of changes into your life.  It can be an exciting time but also one filled with many decisions and lots of paperwork to complete. Among these is what to do with the money you and your previous employer have contributed towards your retirement savings.

While it may be tempting to cash in your retirement savings when you change jobs, don’t do it. Cashing in your savings will not only affect how much money you will have when you retire, it also means you will have to start saving from scratch. It also means you will lose a large chunk of your savings to tax, which could be as much as 41%!

Many people think they will have time to make up for the years of saving – but the reality is that it takes a lot longer than one thinks. Starting over also means you will need to invest even more each month to reach your retirement goals. What’s more, if you cash out, you will also miss out on the full power of compounding. Often called the ‘eighth wonder of the world’ compounding means that you earn interest today on the interest you earned yesterday, over and above the sum you initially invested.

So, what should you do with your retirement savings when you change jobs?

Preserve it (leave it in the Fund)

The law allows you to leave your retirement savings invested in the same fund. Even though you won’t be working for the same company anymore, you can leave your current retirement savings untouched. Leaving your money in the same fund also gives you time to explore all available options while still enjoying the tax benefits that come with having money in a retirement fund.

Re-invest your money in a retirement annuity

A Retirement Annuity is a secure long-term savings solution that offers a wide range of investment choices.  There are a few things you need to be aware of about RAs, however. For instance, you can only access your savings at the age of 55, your investments can’t be attached by creditors and RAs also offer potential tax and estate duty savings. And while most RA funds do not offer death or disability cover, you can purchase risk cover from any reputable financial services provider.

Re-invest your money in a preservation fund

Shifting your money into a preservation fund is a good way to protect your retirement savings. These funds offer more flexibility than a Retirement Annuities because you can make one withdrawal before retirement which could be useful in the event of an unexpected financial crisis. What’s more, transfers to a preservation fund are tax-free!

Transfer your savings to your new employer’s retirement fund

Transferring your savings to your new employers’ retirement fund is another great option. But before you do, be sure to compare the benefits that your existing fund offers with those offered by the new fund. This is particularly important when it comes to the amount of cover offered. For example: is the death benefit the same as the benefit offered by your previous employer? Will you still have life cover for your dependants? Does the new fund offer any disability benefits or value-added services?

Seek advice

When in doubt, seek help. A retirement benefit counsellor, such as those offered for free if you are a member of the Sanlam Umbrella Fund, can help you decide on the right options for you.  They can help explain options available to you before making any decisions about your retirement savings and also refer you to a financial advisor to assist you with your financial planning needs so that you are empowered to live and retire with confidence.