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Bridging the gap

How to fund the years between early retirement and your pension

By Wouter Fourie (CFP®)
Director of Ascor® Independent Wealth Management.
Wouter Fourie is Past winner of the FPI Financial Planner of the Year competition and the co-author of The Ultimate Guide to Retirement in South Africa

Crossing the ‘retirement bridge’ without depleting your hard-earned capital is possible – but it requires foresight, planning, and much discipline.

Access to pension and retirement products in South Africa is often restricted by age and employment status.

Many South Africans choose, or are forced, to retire before they can access certain pension or annuity benefits. This can happen through retrenchment, voluntary early retirement packages, or personal lifestyle choices.

But here’s the challenge: if you retire before your pension kicks in, how do you fund the gap without jeopardising your long-term security?

At Ascor Independent Wealth Managers, we refer to this as the “retirement bridge,” and crossing it successfully requires careful planning.

Why the gap exists

In South Africa, certain retirement products have strict access rules:
Pension and provident funds are typically only accessible when you leave employment after the age of 55 (with some exceptions).
Government pensions and some corporate benefits may have a fixed start age.
Living annuities require you to have converted your retirement capital, and the timing of these matters.
If you stop working before this income streams begin, you could face months or even years of expenses without your primary retirement income source.

Common triggers for the gap

Voluntary early retirement: Many professionals take early retirement packages in their late 50s due to lifestyle or health reasons.
Corporate restructuring or retrenchment: Sometimes the decision is made for you.
Lifestyle change: Selling a business, emigrating, or moving to a less demanding role.
Without a bridging plan, you may be forced to withdraw from your retirement savings prematurely, and this can have long-term consequences.

The risks of an unplanned bridge

Capital depletion: Accessing retirement savings too early reduces the compounding growth you’ll need later.
Higher tax: Large withdrawals can push you into a higher tax bracket.
Sequence-of-returns risk: Drawing from investments during a market downturn can lock in losses.
Lifestyle creep: Without a clear budget, it’s easy to overspend during the “freedom years” before pensions begin.
Strategies to fund the gap safely

Use discretionary investments first

If you have investments or savings outside your retirement funds, draw from these first to delay accessing your retirement capital. This can allow your pension fund or living annuity to continue growing for longer.

Consider part-time or consulting work
Even a modest income can reduce the strain on your portfolio during the bridge years.
Align asset allocation to the timeline

If your bridge period is short (1-3 years), keep those funds in low-volatility investments such as cash, money market funds, and short-term bonds. For longer gaps, include a modest allocation to growth assets like balanced funds and equity funds to help offset inflation.

Plan withdrawals with tax efficiency in mind

Draw strategically from different accounts to manage your annual taxable income. This may involve using capital gains exemptions or splitting withdrawals across tax years.

Budget for healthcare inflation

If you are under 65, you won’t qualify for the enhanced tax benefits associated with medical deductions, which can affect your after-tax healthcare costs during the bridge years.

An example of a smart bridge plan

Consider a 58-year-old planning to retire from formal employment, but with their pension only set to begin at age 63:

Ages 58-63: Cover living expenses using a mix of discretionary investments and part-time consulting work.

From age 63 onwards: Start drawing from a well-structured living annuity at a sustainable rate.

This approach preserves retirement capital for as long as possible, allowing it to benefit from additional growth before drawdowns begin.

If you’re approaching a bridge period

Here’s what to do now:

Calculate your annual income requirements during the gap years.
Review your available income sources and the timing of each.
Model different withdrawal and investment strategies with a certified financial planner.
Stress-test your plan against inflation, market volatility, and possible tax changes.
In closing

Funding the years between early retirement and the start of your pension doesn’t have to mean depleting your hard-earned capital. With the right strategy in place, you can cross the bridge with confidence and arrive at your official retirement with your resources intact.

For more on retirement planning strategies, read The Ultimate Guide to Retirement in South Africa, or visit www.ascor.co.za to start building your bridge plan with a certified financial planner you can trust.

This article first appeared on moneyweb.co.za at https://www.moneyweb.co.za/financial-advisor-views/bridging-the-gap-how-to-fund-the-years-between-early-retirement-and-your-pension/

Contact Ascor®Independent Wealth Managers for retirement planning advice.

https://retirementplanning.co.za/why-retiring-at-60-could-be-the-most-expensive-mistake-of-your-life/

https://www.moneyweb.co.za/financial-advisor-views/why-retiring-at-60-could-be-the-most-expensive-mistake-of-your-life/

https://retirementplanning.co.za/the-silent-threat-to-your-retirement-inflations-real-bite/

https://retirementplanning.co.za/i-am-retiring-in-the-next-12-months-use-this-checklist/

https://retirementplanning.co.za/alternative-ways-to-structure-a-pension/

https://retirementplanning.co.za/the-dire-state-of-retirement-income-of-pensioners-in-south-africa/

Share this post

Bridging the gap

How to fund the years between early retirement and your pension

By Wouter Fourie (CFP®) Director of Ascor® Independent Wealth Management. Wouter Fourie is Past winner of the FPI Financial Planner of the Year competition and the co-author of The Ultimate Guide to Retirement in South Africa

Crossing the ‘retirement bridge’ without depleting your hard-earned capital is possible – but it requires foresight, planning, and much discipline.

Access to pension and retirement products in South Africa is often restricted by age and employment status.

Many South Africans choose, or are forced, to retire before they can access certain pension or annuity benefits. This can happen through retrenchment, voluntary early retirement packages, or personal lifestyle choices.

But here’s the challenge: if you retire before your pension kicks in, how do you fund the gap without jeopardising your long-term security?

At Ascor Independent Wealth Managers, we refer to this as the “retirement bridge,” and crossing it successfully requires careful planning.

Why the gap exists

In South Africa, certain retirement products have strict access rules:

Pension and provident funds are typically only accessible when you leave employment after the age of 55 (with some exceptions).

Government pensions and some corporate benefits may have a fixed start age.

Living annuities require you to have converted your retirement capital, and the timing of these matters.

If you stop working before this income streams begin, you could face months or even years of expenses without your primary retirement income source.

Common triggers for the gap

Voluntary early retirement: Many professionals take early retirement packages in their late 50s due to lifestyle or health reasons.

Corporate restructuring or retrenchment: Sometimes the decision is made for you.

Lifestyle change: Selling a business, emigrating, or moving to a less demanding role.

Without a bridging plan, you may be forced to withdraw from your retirement savings prematurely, and this can have long-term consequences.

The risks of an unplanned bridge

Capital depletion: Accessing retirement savings too early reduces the compounding growth you’ll need later.

Higher tax: Large withdrawals can push you into a higher tax bracket.

Sequence-of-returns risk: Drawing from investments during a market downturn can lock in losses.

Lifestyle creep: Without a clear budget, it’s easy to overspend during the “freedom years” before pensions begin.

Strategies to fund the gap safely

Use discretionary investments first

If you have investments or savings outside your retirement funds, draw from these first to delay accessing your retirement capital. This can allow your pension fund or living annuity to continue growing for longer.

Consider part-time or consulting work

Even a modest income can reduce the strain on your portfolio during the bridge years.

Align asset allocation to the timeline

If your bridge period is short (1-3 years), keep those funds in low-volatility investments such as cash, money market funds, and short-term bonds. For longer gaps, include a modest allocation to growth assets like balanced funds and equity funds to help offset inflation.

Plan withdrawals with tax efficiency in mind

Draw strategically from different accounts to manage your annual taxable income. This may involve using capital gains exemptions or splitting withdrawals across tax years.

Budget for healthcare inflation

If you are under 65, you won’t qualify for the enhanced tax benefits associated with medical deductions, which can affect your after-tax healthcare costs during the bridge years.

An example of a smart bridge plan

Consider a 58-year-old planning to retire from formal employment, but with their pension only set to begin at age 63:

Ages 58-63: Cover living expenses using a mix of discretionary investments and part-time consulting work.

From age 63 onwards: Start drawing from a well-structured living annuity at a sustainable rate.

This approach preserves retirement capital for as long as possible, allowing it to benefit from additional growth before drawdowns begin.

If you’re approaching a bridge period

Here’s what to do now:

Calculate your annual income requirements during the gap years.

Review your available income sources and the timing of each.

Model different withdrawal and investment strategies with a certified financial planner.

Stress-test your plan against inflation, market volatility, and possible tax changes.

In closing

Funding the years between early retirement and the start of your pension doesn’t have to mean depleting your hard-earned capital. With the right strategy in place, you can cross the bridge with confidence and arrive at your official retirement with your resources intact.

For more on retirement planning strategies, read The Ultimate Guide to Retirement in South Africa, or visit www.ascor.co.za to start building your bridge plan with a certified financial planner you can trust.

This article first appeared on moneyweb.co.za at https://www.moneyweb.co.za/financial-advisor-views/bridging-the-gap-how-to-fund-the-years-between-early-retirement-and-your-pension/

Contact Ascor®Independent Wealth Managers for retirement planning advice.

Related topics:

https://retirementplanning.co.za/why-retiring-at-60-could-be-the-most-expensive-mistake-of-your-life/

https://www.moneyweb.co.za/financial-advisor-views/why-retiring-at-60-could-be-the-most-expensive-mistake-of-your-life/

https://retirementplanning.co.za/the-silent-threat-to-your-retirement-inflations-real-bite/

https://retirementplanning.co.za/i-am-retiring-in-the-next-12-months-use-this-checklist/

https://retirementplanning.co.za/alternative-ways-to-structure-a-pension/

https://retirementplanning.co.za/the-dire-state-of-retirement-income-of-pensioners-in-south-africa/

By Wouter Fourie (CFP®)
Director of Ascor® Independent Wealth Management.
Wouter Fourie is Past winner of the FPI Financial Planner of the Year competition and the co-author of The Ultimate Guide to Retirement in South Africa