Two-pot retirement: Should I withdraw some money? Expert answers your questions...
Don't rush to make a withdrawal just yet. But, if you’re going to, you may want to check this out first.
Photo: Pixabay/stevepb
Anele and The Club on 947 speak to financial advisor Dominic Robert.
Listen below.
As we get closer to the 1 September implementation of the two-pot retirement system, it is evident that many people still do not understand the full scope.
ALSO READ: Two-pot retirement system: Read this before you withdraw your funds
ALSO READ: Need cash, quick? Two Pot Retirement System: What you need to know...
Essentially, the two-pot retirement system refers to your retirement savings being split into two ‘pots’:
* Your savings pot, which you can withdraw from once every tax year.
* Your retirement pot will be locked and only accessible when you turn 55.
Robert answers some of the most frequently asked questions:
How will withdrawals affect my tax liability?
The cash injection will be subject to personal income tax.
Whatever amount you withdraw will be added to your taxable income.
“The withdrawal will be a gross amount but what lands in your bank account will be far less.”
- Dominic Robert, Financial advisor
How often can you withdraw in a tax year?
Withdrawals can only be made once every tax year.
The minimum withdrawal is R2000 and capped at R30 000, or 10% (whichever is less).
For any contributions to your retirement savings after 1 September, one-third will be accessible with no withdrawal limitations.
How can I replenish the funds I have withdrawn?
From 1 September your retirement contributions will be split in three.
A third will go into your savings pot while the remaining two-thirds goes into your locked retirement pot.
You can increase your retirement contributions to replenish what you’ve withdrawn.
“You can also put in additional amounts as a lump sum to replenish that.”
- Dominic Robert, Financial advisor
“If a 35-year-old today had to withdraw R30 000, by the time that person is at retirement (age of 65)… that one R30 000 withdrawal will result in R500 000 less in retirement savings.”
- Dominic Robert, Financial advisor
How will low-income earners (withdrawing less than R10 000) be taxed?
People who earn less than about R7000 per month are exempt from tax.
Robert cautions that withdrawals can take you over this taxable threshold.
What happens to my savings pot if I don't make any withdrawals?
Everyone in South Africa is automatically opted into the two-pot system and you cannot opt out.
If you decide not to withdraw from the savings pot, your retirement savings will not be impacted.
“There is no disadvantage to it. It is recommended because it ensures you remain in the market for your pre-retirement term and gives you the best chance of meeting your retirement needs when you choose to retire.”
- Dominic Robert, Financial advisor
Scroll up to the audio player to listen to the discussion.