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My financial advisor mentioned 3a investment funds as a more profitable alternative to 3a savings accounts. I am generally an investment-minded person. Would you recommend placing my retirement savings in an investment fund instead of a savings account?
Hi there,
In today's low-interest environment, products based on securities have a strong appeal in that they can potentially deliver much higher returns than savings solutions. However, there are a number of things you should be aware of before using 3a retirement assets to buy into investment funds or investment accounts.
There are hard and fast rules governing when pillar 3a retirement savings must be withdrawn. On the other hand, market rates fluctuate based on many factors.
Pillar 3a savings can only be withdrawn during a 5-year span (between 59 and 64 for women and between 60 and 65 for men). If you continue working after reaching retirement age, you can delay withdrawal of your assets by up to 5 years (up to age 69 for women and 70 for men), but only as long as you are employed.
You will have to withdraw your 3a assets within the given time-frame, whether or not it is a good time to do so from a market perspective. If you reach withdrawal age just as a major market crisis hits and things don't pick up before you reach retirement age, you may be forced to withdraw your assets at a loss.
Investment funds based on the pillar 3b are a more flexible option for investment-minded individuals because you can withdraw your assets at any time ahead of retirement age. Alternatively, non-pillar 3 investment funds, accounts and ETFs give you full control in that you are not forced to exit them when you reach a certain age. If your retirement corresponds with a market slump, you can wait until rates pick up again before you exit.
In every case, when looking at retirement funds it is important to consider the TER and other costs, because if investment perform poorly, you may end up paying more in administrative fees than you earn in returns. If you do not have a high tolerance for risk, a 3a savings account may be the better option.
Best regards from Moneyguru
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