How a salary cut or reduced income could affect your retirement fund

Many South Africans have lost their jobs in 2020 and more still fortunate enough to be employed, face salary cuts or reduced hours of work, as companies and organisations try to survive a profoundly challenging economic year.

A reduced retirement fund contribution is better than none at all, says Dinash Pillay, national business development manager at Glacier. He offers some food for thought on this critical issue. 

Less really is better than none
A reduction in your salary probably means that you will reduce your monthly contributions to your retirement fund. This is not the end of the world, says Dinash. Continuing to make any contribution will only help to strengthen your financial position when you retire. It’s also helpful to remember that the reduction may not be permanent, so when your salary increases again, your contribution can increase. 

We know that the financial knock-on effect of a salary cut is far-reaching in the medium term, but what of the long term?  Your retirement fund is meant to be an income during your retirement, so what happens when you reduce your contributions?

We’re all in the same storm but in different boats – while we may be facing the same crisis, every person is unique with their own set of financial circumstances.
Staying invested, even with a reduced monthly contribution, has significant positive financial outcomes in the medium and long term.
Any adjustment to your retirement savings – negative or positive – has an impact on your financial future. 

What to do if you’re facing a salary cut
1. Get help from a financial adviser
This truly is the best time to talk to your financial adviser. There are some big, important financial decisions to be made, and your qualified financial adviser can help you make them with confidence. This could include revisiting your budget, your debt repayments and your retirement plan in light of your reduced income.

2. Cut your household budget
Bills will continue to reach you, while your income will have reduced in size. Now is the time to go through your monthly household budget with a fine-tooth comb. You need to be strict and clinical about the expenses that are unavoidable (e.g. your bond repayment or kids’ school fees) and those that are luxuries and can be eliminated – at least for a while.   

3. Contribute to your retirement fund for as long as possible
Your retirement savings is your money, but not for today. Early retirement may be tempting, especially if you’re nearing retirement age. However, if you are able to continue to work – and contribute to your retirement fund, even with a reduced salary – that would be first prize. 

Continue reading: https://www.glacierinsights.co.za/blog/retirement-insights/how-a-salary-cut-or-reduced-income-could-affect-your-retirement-fund 

January 26 2021 By glacierinsights.co.za