Cornerstone — Edition 08
The Window Where Decisions Carry the Most Weight
If retirement is somewhere between five and ten years away, you are in the most consequential financial window of your life. Not the most complex — your 30s and 40s involved more moving parts. Not the most urgent — a 25-year-old who hasn’t started saving is in a more precarious position in absolute terms.
But the most consequential, because the decisions you make in this window have an outsized, largely irreversible impact on the income you will have for the next 25 to 30 years.
This is not the time to become conservative. It is the time to become precise.
Most people understand market risk intuitively — markets go up and down, and down is bad. What most people don’t understand is that timing matters as much as magnitude.
A 30% market decline in your 40s is painful but recoverable. You have decades of continued contributions and market participation ahead of you to rebuild. The same 30% decline in the two years before or after your retirement date is potentially catastrophic.
When you begin drawing from a depleted portfolio before it has recovered, you are selling assets at depressed prices to fund living expenses — permanently impairing the capital base that must sustain you for decades.
It’s not just the average return your portfolio earns that matters, but the order in which those returns arrive — this is called sequencing risk. It is the defining financial risk of the 5–10 year window before retirement.
Consider two identical retirees. Both retire with R5 million, both draw R200,000 in their first year and increase that amount with inflation every year after, and both earn a 9% average annual return over their retirement. The only difference: one experiences a single 30% market decline in their first year of retirement; the other experiences the exact same decline, of the exact same size — but fifteen years later.
Modelled forward, the first retiree’s capital is exhausted by age 89. The second retiree’s capital lasts to age 102 — thirteen years longer, from the identical decline. Nothing else changed except when it happened.
This is a simplified illustration to demonstrate the principle, not a projection of any real portfolio.
The way to avoid depleting your capital at the worst possible time is a deliberate, planned reduction in equity exposure as you approach the retirement date — replacing some growth-oriented assets with more stable, income-generating ones. Not because equities are bad, but because the short-term downside risk is no longer recoverable in the same way.
This is called a glide path, and it should be designed explicitly with your adviser — not handled reactively when markets move.
One honest caveat: the calculator and illustrations later in this edition use a single, flat 9% return assumption for simplicity. A well-executed glide path deliberately trades away some of that return for stability as you near retirement — so treat those figures as an illustration of the principles involved, not a substitute for a plan that actually accounts for your own glide path.
Most people approach retirement without a clear monthly income requirement. They have a vague sense of what they spend now and an assumption that retirement will cost less. Both of these are usually wrong.
The correct approach is to build a detailed retirement budget now — before you retire — using your actual current expenses as the foundation, adjusted for what will change.
What will be lower: the bond repayment may be gone; work-related costs — commuting, professional clothing, lunches — will reduce.
What will be higher: healthcare will increase materially. Leisure and travel for a healthy, active early retiree are often higher than expected. Without the structure of work, discretionary spending tends to rise in early retirement before settling.
Build the budget line by line. Arrive at a monthly income requirement. Apply your planned drawdown rate to check what capital base is required to sustain it. Compare that to your projected retirement capital. The gap, if any, is your target for the years remaining.
Assumes a 9% average annual return, compounding monthly, on both your existing savings and new contributions from today until your planned retirement age — and that the lifestyle behind your desired income also gets more expensive, at 5% annual inflation, over that same period. Capital required is based on that inflated figure, drawn down at 4% a year. This takes the conservative path of holding your monthly contribution flat in rand terms — it does not assume you increase it as your income grows, which most people do over a 5–10 year window. If you plan to increase your contribution over time, your actual position will likely be better than this illustration shows. Your desired income is treated as a pre-tax withdrawal — living annuity income is taxed as ordinary income, so if you need this amount after tax, your actual required capital will be higher. This is a general planning illustration, not a guarantee — actual markets, inflation, and your own circumstances vary. Speak to an adviser to stress-test these assumptions against your specific plan.
If the calculator showed a gap, the next section is where that extra monthly figure should go.
The five to ten years before retirement are typically the highest-earning years of a professional career. They are also the years when the tax efficiency of retirement annuity contributions is most valuable. If the calculator above showed a shortfall and you still have room under the cap below, this is often the most efficient place to direct the extra monthly saving needed to close it.
SARS allows a deduction on retirement fund contributions — including RAs — of up to 27.5% of the greater of your taxable income or remuneration, capped at R430,000 per year. If you are already near that cap, the extra saving from the calculator may need to go elsewhere — a discretionary investment or your TFSA, for instance — rather than into the RA itself.
For a professional earning R1.5 million per year, maximising this deduction reduces taxable income by R412,500, producing an immediate tax saving of approximately R169,125 per year at the 41% marginal rate.
This is a legal, government-sanctioned mechanism to redirect money from SARS to your own retirement. The contribution compounds tax-free inside the fund. The final benefit is taxed on withdrawal — but if your retirement income is lower than your working income, it is taxed at a lower effective rate.
If you are not maximising this deduction, you are deferring a tax saving you are legally entitled to while leaving retirement capital on the table.
One nuance worth knowing before you increase your contribution: under the two-pot system, covered in the next section, a third of every new rand you contribute — to an RA or any other retirement fund — lands in an accessible Savings Pot rather than being fully locked away. Maximising your RA still makes sense, but it is not quite the same as locking every rand out of reach.
Since 1 September 2024, every retirement contribution you make — RA, pension, or provident fund — has been split automatically into two pots the moment it lands in your fund. It is the reform behind the partial access referenced in the section below, and it is worth understanding precisely, since the 5–10 year window is exactly when its trade-offs start to matter.
The Savings Pot. One-third of every new contribution goes here. You can withdraw from it once per tax year, subject to a R2,000 minimum, without resigning or retiring. Whatever you had already saved before September 2024 also seeded this pot with a once-off transfer of 10% of that balance, capped at R30,000.
The Retirement Pot. The remaining two-thirds. Fully locked until retirement, at which point it must be used to purchase an annuity. There is no early access — not on resignation, not on retrenchment, not for hardship.
The Vested Component. Everything saved before 1 September 2024, minus the seed capital transferred out. This portion still operates under the old rules — accessible in full on resignation or retirement, as it always was.
One exception worth checking if it applies to you: if you were a member of a provident fund and were 55 or older on 1 March 2021, you were automatically excluded from the two-pot system by default — no action required on your part. Your contributions continue under the old rules, accessible in full as a lump sum at retirement, with no split into pots. There was a window to opt into the two-pot system voluntarily, but it closed on 1 September 2025. If you didn’t opt in, nothing is required of you now — your fund simply continues as usual under the old rules. Whether this applies to you depends on your specific fund history, so it is worth confirming directly with your fund administrator or your adviser rather than assuming either way.
For someone in this window, the practical point is this: a meaningful slice of every contribution you make between now and retirement is, by design, available to you before then. That accessibility was the point of the reform — but it is also the risk the next section addresses.
Savings Pot withdrawals are taxed at your full marginal rate, not the more favourable retirement lump sum tax table — and unlike a retirement lump sum, they do not benefit from the R550,000 lifetime tax-free threshold. A withdrawal that feels like “just tapping into savings” can cost considerably more in tax than it first appears to.
If any of this still feels unclear, you are not alone — the two-pot system is one of the most-asked-about topics we hear from clients, and we will be covering it in its own dedicated edition soon. In the meantime, if you are weighing whether to draw from your Savings Pot, it is worth a proper conversation with us about the tax cost specifically, rather than working it out alone.
The single most destructive thing a person in the 5–10 year retirement window can do is access their retirement savings for any purpose other than retirement. A voluntary withdrawal at 55 in response to a financial pressure or an opportunity is almost impossible to recover from in the remaining working years.
The tax cost of touching the Savings Pot was covered above. But tax is only half the story — the bigger, quieter cost is what that capital would have become had you left it untouched. The Savings Pot has made this temptation more accessible than it has ever been for someone still employed, and it will present itself in attractive forms: a renovation, a business opportunity, debt relief.
Debt relief deserves a slightly different word than the others. Leaving high-interest debt unpaid isn’t automatically the safer choice either — in some cases, what that debt is costing you in interest can outweigh the tax and future value you’d give up by drawing on your Savings Pot to clear it. This is genuinely a case-by-case calculation, not a rule of thumb, and it’s exactly the kind of decision worth working through with us directly rather than guessing at which side of the trade-off you’re on.
A R500,000 withdrawal at 55 permanently removes that capital from the fund, on top of the tax already paid to access it. At a 9% average annual return — the same assumption used throughout this edition — that R500,000 alone would have grown to approximately R1.18 million by 65. That is the retirement capital shortfall from the withdrawal itself, before counting a rand of the tax it cost to get it out.
The short-term relief rarely justifies this. Protect the retirement fund. Use other resources for other needs. The retirement fund is for retirement.
The one question to sit with
If you ran the calculator above, you now have an actual number — a surplus to protect, or a gap to close. If you haven’t run it yet, that is the work of this window: not a vague sense that things are “probably fine,” but a real figure you have tested against your own plan.
Worth reading
The Ultimate Guide to Retirement in South Africa
The authoritative local reference for pre-retirement planning, written by two of South Africa’s most respected financial journalists. Specific to the South African tax, legal, and product environment in a way that no international book can be.