Keep your savings component invested
When the two-pot system is implemented, most retirement fund members will have access to part of their benefits in case of emergencies or financial hardship.
But even though you can withdraw money from your savings component, you don’t have to. We recommend not to withdraw anything from your retirement fund so that you can retire more comfortably.
Let’s look at an example
Mrs Naidoo, Mr Smith, and Ms Dlamini are all 20 years old. From 1 September 2024, each of them will invest R3 000 every month (increasing their contribution by 5% every year) into their own retirement fund for 40 years. They are all invested in the same retirement fund and will receive the same growth (let's say 10% per year).
From 1 September 2024, all your contributions to your retirement fund will split in 2: 2/3 will go to the retirement component, which you may not touch until retirement, and 1/3 will go to your savings component, which you can access in case of an emergency.
At age 60, Mrs Naidoo, Mr Smith, and Ms Dlamini each have R19,3 million in their retirement pot.
Mrs Naidoo, however, made some withdrawals from her savings pot during her lifetime. She withdrew half of her savings pot every 5 years (a total of R1,6 million in 7 withdrawals). She ends up with only R1,2 million in her savings pot at age 60.
20 years into saving at age 40, Mr Smith withdrew half of his savings pot – an amount of R515 001. At age 60 the value of his savings pot is R6,2 million.
In contrast, Ms Dlamini did not withdraw and has R9,7 million in her savings pot at retirement. She, therefore, has R29 million at retirement.
Note: Individuals earning more than R240 000 a year will pay tax at a marginal rate of between 26% and 45% on early withdrawals from their savings pot. This would likely be more than the tax you will pay if you only withdraw from your savings pot when you retire. In this case, the tax rate would vary between 0% and 36%.
*This is to show what the retirement savings would be worth today, which is the value adjusted for inflation at an assumed rate of 5%.
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