SILVER CLINIC | Can I withdraw part of my contingency fund to pay off my debt?

If you were to access your contingency fund now, you would also be reducing your own long-term retirement savings, which would be very difficult to recover before retirement.

A Fin24 reader whose salary has been cut by more than 50% is struggling to make ends meet. He plans to withdraw part of his pension fund to pay off his debt.

He writes:

I want to know if I can withdraw part of my contingency fund to pay off my debt, which is around 200,000 rand.

When I paid for my house, I lost my mother and had problems with SARS. My car broke down, so I had no choice but to get into debt by borrowing.

My financial problems started in May 2020 when the company I work for cut my salary. I couldn’t honor my debts, which forced me to reduce my insurance and close some of my investments to help pay for my children’s college fees.

Debt consolidation won’t help since I still earn less than 50% of my salary.

Jaco Prinsloo CFP, financial planner at Alexander Forbes answers:

Under the legislation in force until now, you cannot withdraw part of your contingency fund to pay off a debt. The only circumstances which will allow you to access our savings in provident funds are the death, resignation or retirement of your employer or if your fund authorizes a loan on capital for housing purposes. With your current financial problems, you should not consider resigning or retiring (if you are over 55) to access your provident savings.

With the limited information I have, my best advice to the reader is to aim to keep your monthly expenses as low as possible, have a debt repayment plan in place, and look for ways to increase your income. Talk to the companies you owe money to and see if you can develop alternative payment plans to improve your cash flow. You should also consider alternatives for your children’s higher education if you cannot afford it.

If you were to access your contingency fund now, you would also be reducing your own long-term retirement savings which would be very difficult to recover before retirement, which would create further problems in the future.

Warning: This answer does not constitute financial advice. It is recommended that you meet with a financial advisor who can help you understand your benefits and options so that you can make the best decisions based on your personal situation.

Questions can be edited for brevity and clarity.


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