With less than two months to go before the new two-pot retirement system is implemented, you may be disappointed to realise you are unable to immediately withdraw money from your savings pot.

Many employees are banking on being able to withdraw some money from their retirement fund with the implementation on 1 September 2024 of the so-called two-pot retirement system.

However, some people may be overestimating how much they can withdraw and most have not taken tax into account.

Withdrawals must be at least R2 000

On 1 September 2024, an amount of 10% of the value of your retirement fund, up to a maximum of R30 000, will be transferred to your savings pot. This amount is referred to as “seeding capital”.

You would need to have a retirement balance of R300 000 or more to reach that maximum of R30 000. The minimum amount that can be withdrawn from your savings pot is R2 000 – although the best advice for all South Africans is to leave the funds alone, to grow for your retirement.

According to the Retirement Matters Committee of the Actuarial Society of South Africa (ASSA), at least 20% of retirement fund members have a retirement fund balance of less than R20 000. This means their seeding capital (equal to 10% of their retirement fund balance) will be below R2 000.

The average retirement fund balance for these members is around R9 000, which means only R900 would be transferred to the savings pot. These members would not be able to make a withdrawal until the balance reaches R2 000.

ASSA estimates that for these members, the average net retirement contribution is around R942 per month. Only one-third of that contribution (R314) will be transferred to their savings pot each month. Therefore, it would take around four months for these members to have a savings pot fund balance of above R2 000.

Withdrawals are subject to tax

It is also important to note that tax will be deducted from any withdrawal, based on your personal tax rate. For example, an individual with a marginal tax rate of 25% who is planning on withdrawing R30 000 from their savings pot will have around R7 500 tax deducted. This means the net payment will be R22 500.

Before you start planning on withdrawing your retirement windfall, run the numbers first. It may not be as attractive as you think and in most cases it may make more sense to leave it to grow, or as a safety net for when you face a real emergency.

Remember that your best friend when it comes to building wealth, is time. The best investment you can make in your future and the future of your family, is to leave your retirement fund untouched until you actually retire.

This article first appeared in City Press.