The two-pot retirement system was designed to provide limited financial relief in times of genuine financial stress. However, a growing behavioural trend has emerged, presenting a serious risk to one’s long-term financial security. Sean Van Zyl, a financial planner from Old Mutual Personal Finance, said that withdrawals can have lasting consequences for long-term financial security and elaborated on the real cost by comparing two financial scenarios.

Newly emerged spending trends According to Van Zyl, the company has observed that, instead of reserving funds for genuine emergencies, withdrawals are being made for discretionary spending such as Black Friday purchases, holidays, and upgrades to cars and electronics. “In some instances, this is even premeditated, with individuals planning at the start of the year to use their savings pot for such expenses,” he said. “As a result, many choose to proceed without consulting their financial advisers because they are fully aware that the decision is not financially sound.” Avoidance is not key Van Zyl linked this behaviour to a broader issue: avoidance.

As many people avoid confronting the true state of their finances, he warns that accessing the savings pot creates a false sense of comfort and supports the illusion that everything is under control, when in fact, underlying health may be deteriorating. It is essential to face the truth about one’s financial position. As meaningful improvements can only be made through informed decisions that require honest and accurate assessment.

“Avoidance, by contrast, delays the problem and often makes it worse.” The real cost of early withdrawals To emphasise the real cost of early withdrawals, Old Mutual Personal Finance has prepared a scenario comparing the choices of two investors over a five-year period, with outcomes measured at retirement. The scenario starts on 1 September 2024 with investor A and investor B, each with R250 000 in retirement savings Each saving pot is seeded with 10%, resulting in R25 000 in savings and R225 000 in the retirement pot Each making monthly contributions of R2 000 split between pots, with around R667 towards savings and R1 333 to retirement, with both pots growing at an annual return of 6.5% compounded monthly Investor A decides to withdraw the full savings pot balance each year from 2025 to 2029, while investor B remains fully invested, making no withdrawals Both investors decide to stay invested with no further withdrawals from 2030 to retirement in 2040 At the time of retirement, investor A accumulates about R1 214 000 while investor B reaches around R1 386 000 “The difference of roughly R170 000 is driven purely by behaviour, despite identical contributions, returns and fees,” Van Zyl explained.

The numbers clearly show that even relatively small, repeated withdrawals early on can result in a significant loss at retirement. And once that compounding advantage is lost, it cannot be recovered. ‘I can just make it up next month’ Common justifications and excuses for early withdrawals also come with the belief that the shortfall can be made up later.

However, Van Zyl warns that this way of thinking is deeply flawed. “In practice, it rarely happens. Instead, individuals give themselves false hope and effectively gamble with their retirement prospects.” Van Zyl says that the disregard for the tax implications associated with savings withdrawals is equally concerning.

For many, the urgency to access cash outweighs any consideration of the cost. Consequences This approach is particularly dangerous when dealing with retirement savings, where the long-term consequences are significant and often irreversible. “The tax consequences alone should give people pause, but too often we see individuals accessing these funds without fully understanding or even considering the cost,” added Van Zyl.

Even though access to the savings pot causes a spike in income and results in additional income tax, this makes the withdrawal less attractive. For example, if someone sees they have R30 000 in their savings pot and makes a withdrawal, Van Zyl said that the South African Revenue Service (Sars) will recover up to 45% tax on the withdrawal. The last resort While emphasising that the savings pot should be treated as a last resort, because it exists to address genuine needs when one is under considerable financial pressure, not discretionary wants.

“While broader awareness initiatives are needed, financial advisers play a critical role in helping individuals understand long-term consequences of short-term decisions,” said Van Zyl. Risks and no reward Individuals have been urged to approach each withdrawal with caution, discipline, and a clear understanding of their purpose. While emphasising that users should consult financial advisors before making any decision to withdraw, as these continuous withdrawals can have negative long-term effects on their financial security. “The real risk is not the withdrawal itself, bu