Given the strong performance across most asset classes over the past 18 months, it’s easy to feel tempted to dip into your retirement savings through the two-pot system by accessing funds from the savings pot.
According to SARS, more than two million South Africans made withdrawals between September 2024 and June 2025, totalling a staggering R57 billion. While the system was introduced to help people manage genuine financial emergencies, most withdrawals have instead been used to cover ongoing expenses.
Article by: Esmarie Strydom, Independent Trustee, Prescient Retirement Funds
So, what’s the real concern?
Money withdrawn today doesn’t just reduce your balance — it removes decades of growth.
The reality is sobering: research consistently shows that only about 6% of South Africans can afford to retire comfortably. If we interrupt the growth of our retirement savings by withdrawing early (i.e. prior to retirement), we sacrifice the power of compounding interest and may be forced to delay retirement far longer than planned.
For example, withdrawing R30 000 at age 30 could cost you around R525 000 by the time you retire, assuming a 10% annual return over 30 years (and that you retire at age 60). On top of that, if you fall into the 26% tax bracket, you would immediately lose R7 800 in tax. That means you receive less now and give up substantially more later.
Time in the market matters enormously. Each rand saved at age 25 can be worth up to 30 times more than a rand saved at age 55. Yet recent research shows that many millennials spend more on coffee each month than they do on retirement savings. Even more concerning, those aged 25 to 30 are three-and-a-half times more likely to cash out what they can of their retirement savings when changing jobs.
Small decisions today have large consequences tomorrow
A useful rule of thumb is the “25-times rule” to estimate the capital needed at retirement. Simply multiply your desired annual after tax income by 25. For instance, if you need R240 000 per year (R20 000 per month), you would require approximately R6 million in retirement capital.
Understanding the power of compound growth should encourage us to save more when we are young, allowing time to work in our favour. Ideally, we should consume the fruits of our savings later in life — not erode them prematurely.
Retirement is widely regarded as one of life’s most stressful transitions, largely because of the financial pressure and complex decisions involved. You can ease that burden by protecting your savings now.
Be kind to your future self. Start taking your retirement savings seriously today.
Disclaimer:
The Prescient Retirement Funds (“the Funds”) are registered with the Financial Sector Conduct Authority and approved by the South African Revenue Services for tax purposes. The Funds are administered by Prescient Fund Administration (Pty) Ltd (Reg. No: 2023/697717/07, “Prescient Fund Administration”). Prescient Fund Administration is an approved retirement benefits administrator (Licence No: 24/810) under section 13B of Pension Funds Act, 24 of 1956 and a Juristic Representative of Prescient Fund Services (Pty) Ltd, an authorised Financial Services Provider (Licence No: 43191) under the Financial Advisory and Intermediary Services Act, 37 of 2002. This document is made available by the Funds for information purposes only and does not constitute advice or a solicitation for investments. Members may need to seek professional financial advice before making an investment decision. It is subject to copyright and may not be altered, copied or reproduced in whole or in part without the written permission of the Funds. The Funds and their trustees, and / or Prescient Fund Administration cannot be held liable for damages or loss suffered as a result of any action taken based on the information in this document.
