Namfisa warns against early pension withdrawals
Ogone Tlhage
The Namibia Financial Institutions Supervisory Authority (Namfisa) is advising members of pension funds not to draw down on their savings when changing employment or withdrawing prematurely, warning that doing so erodes the power of compound interest.
The Consumer Financial Protection Bureau defines compound interest as interest earned on both the money you have already saved and on the interest accumulated over time.
“The most significant long-term effect is the permanent loss of the power of compound interest. Money withdrawn early misses out on years or even decades of potential investment growth, making it far more difficult to build sufficient wealth for the future. A small withdrawal early in one’s career can result in a substantial loss of potential retirement savings later on,” the regulator said during a presentation to members of the media at an outreach session held in Swakopmund.
According to Namfisa, without adequate savings, individuals face a significant risk of outliving their earnings and potentially struggling to cover basic expenses such as housing and healthcare during retirement.
The regulator warned that insufficient savings lower the quality of life in retirement.
“Insufficient funds can force a significantly lower standard of living in retirement, making dreams of travel or hobbies unachievable and leading to potential reliance on social grants, which often provide inadequate income on their own,” it said.
In addition to a reduced quality of life, retirees may also face the prospect of having to work longer while coping with added stress and health challenges.
“Many individuals who do not save enough are forced to continue working well into their seventies, health permitting, to cover living expenses. Constant worry about financial instability can lead to chronic stress, which negatively impacts both mental and physical health,” Namfisa said.
Retirement funds, it added, also help retirees avoid dependence on state aid or family members.
“In some cases, inadequate savings can force retirees to move in with or rely on their adult children for financial support, potentially creating a cycle of financial strain across generations,” Namfisa said.
“Preserving retirement savings is crucial for a secure and independent future. Cashing out or failing to roll over funds when changing jobs can lead to substantial financial hardship, eroding years of savings and future growth potential,” it added.
The Namibia Financial Institutions Supervisory Authority (Namfisa) is advising members of pension funds not to draw down on their savings when changing employment or withdrawing prematurely, warning that doing so erodes the power of compound interest.
The Consumer Financial Protection Bureau defines compound interest as interest earned on both the money you have already saved and on the interest accumulated over time.
“The most significant long-term effect is the permanent loss of the power of compound interest. Money withdrawn early misses out on years or even decades of potential investment growth, making it far more difficult to build sufficient wealth for the future. A small withdrawal early in one’s career can result in a substantial loss of potential retirement savings later on,” the regulator said during a presentation to members of the media at an outreach session held in Swakopmund.
According to Namfisa, without adequate savings, individuals face a significant risk of outliving their earnings and potentially struggling to cover basic expenses such as housing and healthcare during retirement.
The regulator warned that insufficient savings lower the quality of life in retirement.
“Insufficient funds can force a significantly lower standard of living in retirement, making dreams of travel or hobbies unachievable and leading to potential reliance on social grants, which often provide inadequate income on their own,” it said.
In addition to a reduced quality of life, retirees may also face the prospect of having to work longer while coping with added stress and health challenges.
“Many individuals who do not save enough are forced to continue working well into their seventies, health permitting, to cover living expenses. Constant worry about financial instability can lead to chronic stress, which negatively impacts both mental and physical health,” Namfisa said.
Retirement funds, it added, also help retirees avoid dependence on state aid or family members.
“In some cases, inadequate savings can force retirees to move in with or rely on their adult children for financial support, potentially creating a cycle of financial strain across generations,” Namfisa said.
“Preserving retirement savings is crucial for a secure and independent future. Cashing out or failing to roll over funds when changing jobs can lead to substantial financial hardship, eroding years of savings and future growth potential,” it added.
