After decades of saving, investing and planning, retirement should be an exciting milestone. In my experience sitting across the table from clients in this position, it can also be one of the most stressful financial periods of their lives.
The reason is simple: many retirement decisions are difficult, or impossible, to reverse. A mistake made in the months leading up to retirement can have consequences that last for the next 20 to 30 years. Here are five of the most important decisions to get right.
1. Taking too much cash upfront
One of the first decisions retirees face is whether, and how much, to take as a cash lump sum from their retirement savings.
Since the two-pot retirement system came into effect in September 2024, this decision looks a little different than it used to. At retirement, your savings pot (one-third of contributions made since the changeover) is available in cash, while your preservation pot (the remaining two-thirds, plus everything saved before September 2024) must be used to provide an income, typically through a living annuity or a guaranteed life annuity.
While paying off debt or creating an emergency reserve may make sense, taking more cash than necessary reduces the capital available to generate future income, and can push you into a higher tax bracket in the year you retire.
Every rand taken out today is a rand no longer working for your future income.
Before taking a large lump sum, ask yourself: What is this money actually for? Do I genuinely need it now? How will it affect my long-term income?
2. Choosing the wrong income solution
Your retirement savings now need to do a very different job. For decades, your investments were designed to grow your wealth. In retirement, they need to provide an income while still keeping pace with inflation over what could be several decades.
Broadly, you are choosing between a living annuity, where you retain control of the underlying investments and choose your own income drawdown rate within limits set by law, and a guaranteed life annuity, where an insurer pays you a fixed or inflation-linked income for life in exchange for your capital. Increasingly, retirees blend the two: a guaranteed annuity to cover essential monthly expenses, and a living annuity for flexibility and growth.
The right combination depends on your income requirements, risk tolerance, health, estate planning objectives and family circumstances. There is rarely a one-size-fits-all answer.
3. Drawing too much income too soon
One of the biggest risks retirees face is not market volatility, it is running out of money. Retirement could last 25 to 30 years or longer.
Living annuities in South Africa allow a drawdown rate of between 2.5% and 17.5% a year. Drawing on the higher end of that range in the early years of retirement, particularly during periods of poor market performance, can place significant pressure on capital that may never fully recover.
Sustainability should be one of the primary objectives of any retirement income strategy.
Retirement income is not about maximising today’s income. It is about balancing today’s lifestyle with tomorrow’s security.
4. Becoming too conservative
Many retirees, uncomfortable with investment market fluctuations, move entirely into cash or low-growth investments. While this may feel safer, it introduces a different risk: inflation.
Even in retirement, your money may need to last 25 years or longer, and South African inflation has averaged around 5% to 6% a year over the past decade. Having the right balance between growth and stability is essential to maintaining your purchasing power over time.
The challenge is finding the right balance between growth, income and stability, not eliminating growth altogether.
5. Making decisions without getting a second opinion
Retirement is one of the biggest financial decisions of your life, yet many people make these decisions only once, often without specialist guidance.
The decisions you make at retirement affect your income, your tax, your investment strategy and your financial security for the rest of your life. An independent review can often identify opportunities, risks or alternatives that may otherwise be overlooked. Even if you already have a plan in place, a second opinion can provide clarity and confidence that you are making the right decisions.
Final thoughts
Retirement is not simply the end of a career. It is the beginning of a new financial phase that requires a different strategy, different priorities and different thinking.
Getting these decisions right can mean the difference between worrying about money in retirement and enjoying the freedom you have spent your life working towards. Before making one of the biggest financial decisions of your life, make sure you fully understand your options, and the long-term consequences of each choice.
