Expert explains real cost of constant two-pot withdrawals on retirement savings

Empty wallet in the hands of an elderly man. Picture: istock 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. 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.” 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.

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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.” 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 difference of roughly R170 000 is driven purely by behaviour, despite identical contributions, returns and fees,” Van Zyl explained.

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