How should retirees draw income from offshore investments?

The difficult question is rarely whether a global fund is capable of making a payment. It is whether you can keep paying your expenses without repeatedly selling more units than the plan anticipated. A portfolio that looks adequate in dollars can become much less comfortable when measured against school fees, medical costs and household spending in rand.

In this article

Start with the cash shortfall, not the portfolio yield

Suppose pensions cover most of your household budget, leaving a R12,000 monthly spending gap. You also set aside an illustrative R3,000 a month for investment-related tax and charges. The portfolio must therefore supply R15,000 of cash a month, or R180,000 a year. That provision is an invented planning input, not a tax rate or a calculation of anyone's liability.

Separate three amounts on the withdrawal instruction: what reaches the household, what is retained for tax and what is lost to charges. Otherwise, a R12,000 “income” target can conceal a larger reduction in capital. Irregular expenses need their own dates; a dental bill does not become monthly just because a spreadsheet averages it over a year.

This article concerns withdrawals from accessible discretionary investments. A living annuity has its own payment and product constraints. Money inside a retirement arrangement should not be assumed to be freely redeemable because its underlying investments are offshore. For the broader spending decision, start with how much you can safely withdraw in retirement.

For a South African tax resident, offshore does not mean outside the tax system. SARS describes taxation of residents' worldwide income and the application of capital gains tax to assets inside and outside South Africa. A disposal, its gain and any taxable income need to be distinguished from the cash transferred to your bank account. Do not apply one assumed tax percentage to every withdrawal or treat every rand received as a capital gain. Keep acquisition, income, disposal and currency records, and have the actual treatment checked for the holding concerned. SARS: how tax is collected, capital gains tax.

Two falling prices can make the same withdrawal much larger

Consider a retiree with 3,000 investment units worth US$100 each. At R20 to the dollar, the offshore portfolio is worth R6 million. There is a separate R360,000 rand cash reserve. Total starting financial assets in this example are R6.36 million.

Now assume the unit price falls 25%, to US$75, while the exchange rate moves from R20 to R16 per dollar. The rand has strengthened: each dollar buys fewer rand. The offshore portfolio is now worth R3.6 million. The combined rand loss is 40%, because 75% × 80% = 60%; adding the two percentage declines would give the wrong answer.

The household's cash need has not changed, yet each payment consumes two-thirds more units. Those percentages describe the offshore holding alone; they are not withdrawal rates calculated on the R6.36 million including cash. They also do not establish that either rate is sustainable.

This is why “the fund should earn more than I withdraw” is too loose a plan. A long-term return expectation does not tell you how many units must be sold next month. Conversely, a weaker rand might cushion a foreign market loss, but that favourable combination is not something a retirement budget can require.

What does a cash reserve actually buy?

The R360,000 reserve covers 24 payments of R15,000 in this deliberately simplified example. Compare two policies starting with exactly the same investments and cash:

• Cash first: take all 24 payments from the rand reserve and leave the 3,000 foreign units untouched.
• Monthly foreign sales: sell enough foreign units for each payment and leave the R360,000 reserve untouched.

Assume the joint shock happens before the first payment. There is no interest on cash, no distribution, no further price movement except the recovery specified below, and no separate tax or dealing-cost calculation. Each policy supplies the same R360,000 over two years. Actual taxes and charges would need to replace the assumed cash provision in a personal plan.

In the recovery path, monthly sales dispose of 150 units in the first year and 90 in the second. The remaining 2,760 units are worth R5.52 million at the recovered prices; adding untouched cash gives R5.88 million. Cash first preserves more units for the rebound and finishes R120,000 ahead.

Without recovery, monthly sales dispose of 300 units, leaving R3.24 million invested plus R360,000 cash. Cash first leaves R3.6 million invested and no cash. The totals are equal. The reserve has changed which asset paid the bills, not removed the economic cost of spending.

Give the reserve a refill rule and an expiry date

“Use cash until markets improve” sounds sensible but leaves two decisions unanswered: what counts as improvement, and what happens if it does not arrive? At the end of our second path, the cash-first retiree has no reserve. Continuing R15,000 payments now requires another funding source or investment sales at the depressed prices.

A workable policy identifies the expense it protects and reviews the remaining runway before it becomes urgent. The amount might cover a known foreign transfer delay, a scheduled tax payment and an agreed period of household spending. That is more defensible than adopting two years because it is a familiar round number.

Replenishment can use scheduled income, maturing assets or sales made as part of an agreed portfolio review. Record who decides, which assets may be sold and how much flexibility the household has if the reserve cannot be restored. A rule that always waits for the rand to return to R20 is a currency forecast disguised as administration.

There is also a cost to carrying cash instead of the alternative investments. Morningstar's 2023 comparison of retirement-income bucket strategies modelled US historical return sequences, US tax assumptions and several spending rules. Its cash-reserve approaches could reduce modelled spending or ending wealth through the cost of cash, while offering a behavioural benefit where they prevented the panic selling built into the study. It does not establish an optimal reserve for South Africans. The relevant lesson is to test the reserve's cost and the behaviour it is meant to prevent. Morningstar, A Comparative Study of Retirement-Income Bucket Strategies.

Access and currency are separate decisions

An account statement showing a rand value does not necessarily mean the investments have no foreign exposure. A rand-denominated offshore unit trust can hold foreign investments; the provider's structure determines how you subscribe and withdraw. Direct foreign accounts introduce their own dealing, settlement, conversion and transfer steps. Check those steps with the actual platform rather than assuming that all offshore money follows the same route. Allan Gray: rand-denominated offshore unit trusts.

For each account, establish the earliest reliable date cash can reach the spending account, the fees or spreads that apply, who can give instructions and what documents are needed. A retirement plan dependent on one spouse's login or an untested bank instruction has an operational weakness even if the asset allocation is sound.

Then match the reserve to the expense. Rand household bills justify thinking in rand. A committed overseas expense may justify holding the relevant currency. Calling all cash “safe” without naming the liability can hide another exchange-rate exposure.

ClearGauge's judgement: pre-agree the concession

The most useful part of a withdrawal plan is often the decision it makes before a difficult year. Which discretionary expense can be postponed? What amount of cash must remain accessible? When will the household reconsider the withdrawal itself, rather than merely switch the asset being sold?

In our example, a reserve helps with the timing of sales on one path. It does not repair the permanent move from R6 million to R3.6 million if there is no recovery. If the plan only works by assuming a rebound before month 25, the real weakness is the spending commitment or risk exposure, not the absence of a cleverer bucket name.

For an advice review, bring twelve months of actual spending, the next two years of unusual payments, statements showing all underlying holdings, tax records and the platform's withdrawal process. Ask for a written comparison that uses the same starting capital and household cash receipts across alternatives. A plan with a larger reserve should show where that cash comes from and what is given up to hold it.

Common questions

Should I convert the whole offshore portfolio to rand at retirement?

Retirement does not by itself settle the allocation. Conversion can reduce one currency mismatch while changing diversification and future foreign spending capacity. Separate the cash needed soon from the assets supporting later years. The broader decision belongs in how much offshore exposure to hold.

Is taking dividends safer than selling units?

The payment label is not enough. Compare the portfolio's total value, income reliability, tax and underlying concentration. A dividend target that pushes you into a narrow set of holdings can create a different risk. The withdrawal plan should work from the household's cash requirement rather than require the market to distribute that exact amount.

Should I stop withdrawals when the rand strengthens?

Only if another source can meet the expense or spending can change. Essential bills do not wait for a preferred exchange rate. Use the pre-agreed reserve and review rules, and recalculate the portfolio draw if the change persists.

Sources and calculation basis

Sources were checked on 6 September 2026. The Morningstar study uses US data and tax assumptions; no South African success rate is inferred. All amounts and paths here are hypothetical. The monthly files show units sold, retained cash and total wealth for both policies. They assume no return on cash or distributions and use an assumed total cash requirement rather than an actual tax assessment. No recovery timing, preferred exchange rate or sustainable draw is promised. General education only; the account, tax position and household spending require individual assessment.