It’s here, the two-pot retirement system is live and South Africans are scrambling to dip into their savings pots. JJ van Wyk, Executive Financial Adviser from Momentum Financial Planning urges retirement savers to seek professional financial advice before diminishing their savings to the point of no return.
“While two-pot is designed to enhance retirement planning and financial security, the emergency savings pot should be used with caution. And if you do withdraw, then you better have a financially sound plan driving that decision,” says van Wyk.
Why the two-pot retirement system matters
The two-pot system is a significant shift in retirement planning. It is structured to help South Africans save more efficiently for retirement, safeguard their savings, and make more informed financial decisions.
Despite the benefits, many people are panicking to prematurely withdraw their funds. Van Wyk emphasises the importance of seeking advice from knowledgeable professionals before making any decisions.
According to the latest Momentum Unisa Household Financial Wellness index, only 10% of households in South Africa reach out to financial advisers, yet many overestimate their financial literacy. The index shows that while 45.7% believe they are financially literate, only 15% actually meet the criteria.
“This gap in understanding can lead to poor financial decisions, especially when it comes to complex never-before-seen systems like two-pot,” says van Wyk.
He further explains, “Long-term financial success requires careful planning and preparation. Financially literate people are more likely to engage in detailed retirement planning, set aside funds for education, and create comprehensive estate plans. These actions not only ensure their own financial security but also provide for their loved ones.”
The risk of premature withdrawals
The lack of detailed financial knowledge is widespread across various demographics in South Africa. Many households, regardless of their financial literacy level, struggle with understanding how much of their income should be allocated to retirement savings and when to start. The index found that nearly 70% of households know they should start saving before the age of 30, but there is significant variability in how much they should save.
“Withdrawing from your savings pot on day one can be tempting, especially during these times of financial stress,” van Wyk warns. “However, keeping your money invested is usually the better option. If you don’t withdraw, your savings will grow, providing a more substantial nest egg for retirement.”
Momentum offers a savings component calculator to help individuals understand the potential benefits of leaving their money invested. This tool can illustrate how your savings could grow over time, reinforcing the importance of thoughtful financial planning.
Secure your financial future with expert advice
As the two-pot retirement system becomes a reality, the key message from financial experts is clear: seek advice before making any moves. The system is designed to provide flexibility and security, but only if used wisely. “Speak to a financial adviser to ensure that your decisions today do not compromise your financial future.”
For van Wyk, a financial adviser can help you understand the long-term implications of withdrawing from your savings pot and then offer personalised strategies to enhance your retirement savings efforts.
“Financial decisions are rarely one-size-fits-all,” says van Wyk. “Professional advice ensures you are making informed decisions that align with your overall financial goals. That is the foundation of financial success,” van Wyk concludes.
