You might be a paper millionaire, but don’t be swayed into making rash decisions.
Your best option is investing the money wisely, stresses Crawford. “Severance cash should be held in interest-bearing accounts with reasonably easy access until your income streams are restored. Retirement fund money can be invested in preservation pension or provident funds.
“Retirement annuities are a lot less flexible: once the money’s invested, it has to stay there until retirement and even then, only one-third of it may ever be withdrawn in cash. You may make a withdrawal from a preservation fund before it reaches maturity, so there’s an escape hatch if you need it, but remember that any money taken is taxed.
“If you don’t have to dip into your retirement fund money, let it grow there: just think about much it will grow for when you’re no longer able to work.”
HOW LONG WILL THE MONEY LAST?
Let’s assume that your monthly living costs are R28 000 per month, including repayments on cars, mortgages and debt like furniture.
Dividing R28 000 into the above package (which was R582 00, after tax) means that you could live off it for 20 months. Taking inflation into account, let’s reduce that period to 18 months. The question is: Can you find a job or source of income in that time? Unless you absolutely can’t, don’t withdraw anything more from your retirement fund.
Retrenchment cover is an insurance policy that will pay out your complete salary or a portion of it if you’re retrenched. Some banks and insurers offer policies that you can take out either as a stand-alone product or to add to an existing cover portfolio.
Tristan Naidoo, Senior Legal Adviser at Old Mutual, says: “Retrenched South Africans are often tempted to withdraw their retirement savings in cash to tide them over until they find a new job. Retrenchment cover can help you avoid doing this by providing an income and financial security until you find another job. If you’re retrenched, it’s generally best to preserve your retirement fund savings in a preservation or retirement annuity fund. Employees should consider adding retrenchment cover to their existing death, disability or severe illness cover.”
This article appeared on the June issue of DESTINY