Question:
If I leave my company, I have will have a pension payout before tax of R616 000. My bond is R250 000 at the moment. I know it's not advisable to dip into one's pension as it is there for old age, but wouldn't I save interest on my bond if I paid the R250 000 off, and then invested the balance into a retirement fund?

Answer:
Let's assume that your bond is over twenty years, and the repayment is around R2700 per month. If you continue to pay the minimum for the next twenty years, you will have paid R410 000 in interest.

If you cash in your pension, you will taxed at your marginal rate. Let's say this is 30 percent. So your tax portion would be R198 000. On face value it looks like the bond settlement is the better option.

However, the interest on the bond is stretched over a long period of time and if you are nearing retirement age, then you may not have twenty years left on your bond.

If you can continue working and pay extra money into the bond from your income, it would be better than taking the knock on your retirement funds... especially as Sars is gradually reducing the tax burden on retirement funds.

If for example you only have seven years left of bond repayments, your outstanding interest will be about R120 000. You have to weigh up the costs of both exercises.

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