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Can I use my pension to buy a house and business?

I'm thinking of resigning and buying two taxis and a mobile salon for my wife. Is this wise?

I’m 45 and work for government. I want assistance regarding resignation in order to start a business. My wife is also almost 40 and I don’t see her getting [another] job at that age. Currently I don’t even have my own house and even if I try to buy one now, I’ll still be paying for it beyond my pension. Last time I checked I had R1 800 000 [in pension funds] before tax with the GEPF.

Because I still possess a lot of energy I want to start a business of my own, and buy a house cash – maybe for around R500 000. My wife is working as a hairdresser and she has the potential to make about R30 000 every month, however, her boss pays her R2 500 per month. My brother is a taxi driver who makes about R15 000 for his boss and earns only R700 a week. So my idea is to use both skills and protect that profit from going to someone else.

I’m thinking of buying two Toyota Quantams (for me and my brother) and a mobile salon for my wife. I’m prepared to work hard. My plan is to push even harder the first three years to protect the money that I took from my retirement and maybe buy land and start to build flats to rent in my own time – even if I finish [building] in two years’ time, as long as it’s going to generate income. Am I making the right decision?

Mpumi Mbilase - Masthead Financial Planning

You need to understand and know your benefits as a Government Employees Pension Fund (GEPF) member, because thousands of civil servants continue to make a mistake that puts their financial security and that of their dependents at risk by resigning from their jobs.

There are proven cases where GEPF members use the money to start a business that often fails, leaving them with no money at retirement.

Most importantly, understand that the money you’ll get from the GEPF will be calculated based on a certain formula and may not give you R1 800 000 after tax. [Your] purchasing a house at R500 000 in cash and starting a business without an income is too risky. You might want to keep your job and start a business until such a time when you can see your business is doing well – then you can exercise more options.

Income replacement

First, you need to be able to calculate the costs of replacing your current income until death or retirement, should you resign from your GEPF scheme.

It’s important to understand your provisions as a bread winner and the benefits that come with your employer benefits. Should you resign from your employment, you still need to be able to make provisions and support your own daily health benefits and those of your dependents.

Bear in mind that the government is providing you with more secure security in terms of salary and employee benefits.

Primary residence

I personally believe it would be the best decision to take a bond when you are still employed. Looking at your current financial situation, it looks like you have dependents to take care of. It’s better to pay off your own bond as opposed to paying someone else’s bond, renting or buying a property cash. But it really depends on your lifestyle, retirement plans, assets, and of course, health.

I don’t have all the facts of your current situation and I think it’s a broader question that should include your financial advisor and accountant.

However, here are a few tips from a mortgage professional:

I feel that if you [plan on retiring] at 65, you may want to consider taking a 20-year fixed bond [while employed], which will provide you with the most stability and comfort, and still keep your current job. True, you may be paying more in interest, but depending on all the factors above, this may be an excellent choice. Furthermore, though you may pay higher interest, you can generally deduct a higher amount from your taxes (talk to a qualified tax advisor).

A more aggressive loan such as an adjustable-rate mortgage or a line of credit will provide you with a lower payment and more interest savings. However they come with more volatility. 

The good news is that you can always look to refinance out of any of these suggestions and into the other if you see it is not working for you. 

Remember I do not have the facts of your current financial situation to give you better advice.

I would encourage you to reach out to a qualified financial professional who also understands financial mortgage and estate planning or who will happily work with your financial planner. Best of luck to you.

Do you have any questions you would like answered by registered financial planners?

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