🍲 💸 How much will your two-pot withdrawal really cost you?

After hosting a webinar about the two-pot retirement reform last week, which had some of the most lively viewer interaction, and then fielding questions on email, I’ve been struck anew by how much consumer education is still needed around this topic.

A lot of the focus has been on how much you will be able to withdraw, and how often, how much tax you will pay and how it will all work practically. However, I think a more pressing point that many are missing is the ultimate effect any withdrawals will have on your retirement savings.

Yes, everyone knows it will affect their retirement. However, seeing the actual numbers is far more impactful. Luckily for me, the experts at Coronation and Allan Gray did the maths. I think this is one of those instances where the numbers really do the talking.

Jaya Leibowitz, manager of retail legal at Allan Gray, points out that any withdrawals you make are included in your gross income for that year, which means it could push you into a higher tax bracket. She provided the following example:

👩Sally is a 35-year-old full-time employee with a taxable income of R370,000. Based on the 2024/25 income tax table, her tax liability will amount to R59,997 (R42,678 + 26% of the amount above R237,100 – primary rebate of R17,235).

😔If Sally decides to access a savings withdrawal benefit of R25,000, she will be pushed into a higher tax bracket and will be liable for tax of R67,722 (R77,362 + 31% of the amount above R370,500 – primary rebate of R17,235).

Pieter Koekemoer, head of personal investments at Coronation, says every R1 you withdraw early at the age of 35 could equate to as much as R30 at retirement 30 years later. 

Leibowitz spells it out with another clear example of the withdrawal impact:

⏳😢Sally plans to retire at 65, but withdraws R50,000 at the age of 35. If you assume her retirement savings were earning returns of 10% a year for 30 years, she would be losing up to R870,000 that could have been used to provide her with an income in retirement.

Sobering calculations that should give you pause for thought.