A retirement annuity (RA) is meant to help you save money to assist you during your retirement. RAs aren’t accessible until you reach the age of 55, you move to another country, or you're unable to work because of disability. Even then you’re not allowed to cash out the full amount. Two thirds of your RA need to go towards an income-generating fund.
The only time you can cash out your RA is when the amount in it is R7000 or less. But should you withdraw this money to start a business? Justmoney spoke to a wealth coach, Tanya Haffern to find out if this is a viable idea.
Tip: The longer you wait to start saving for your retirement, the higher the risk of you battling to survive in your retirement years. Start now by clicking here.
“Starting a business is stressful enough as is and if you cash out your RA, you’re losing out on the possibility of that future income,” says Haffern.
“Sure, you could argue that younger people can afford to cash in their RAs as they have more time to make up that shortfall in future but in reality, the future arrives a lot faster than you might imagine,” she says.
In addition, when you’re younger your RA is worth less so it might not be worth cashing in anyway.
“While an RA doesn’t offer much future income, depending on the plan you choose, it’s still something. Given how many people retire, or are forced to retire with absolutely nothing, I wouldn’t risk it.”
What you can do instead…
“Focus your energy and attention on starting your business with as little money as possible, take a loan from the bank, find investors, or hustle harder to make it work,” says Haffern.
READ MORE: Personal loan or business loan? The best way to finance your business
Rather start small. All you need is one idea, and one customer who’s prepared to pay you. Starting small allows you to learn as you go while protecting your financial future from certain financial ruin that will come from throwing large sums at an untested idea.
When you withdraw from your RA, you need to also think about the tax implications.
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