Hugh Hacking, CFA, Executive Head, Structured Investments and Annuities, Momentum Corporate
On 21 October 2026, Finance Minister Enoch Godongwana will deliver the Medium-Term Budget Policy Statement (MTBPS). Investors will be watching the growth, debt, and revenue projections closely, but people approaching retirement should also consider what the changed economic environment means for their retirement savings and the income those savings will need to produce.
If, like me, you came away from the Minister’s February 2026 Budget Speech optimistic about your investments, then the months since have probably left you feeling considerably less confident. Following the outbreak of conflict in the Middle East at the end of February, fuel prices jumped to record levels and investment markets have come under renewed pressure. Rising fuel prices have fed through to inflation, which in turn has led to two repo rate increases since the Budget Speech. As we head towards the MTBPS and the upcoming local elections, it’s worth reassessing your investment and retirement strategy to make sure it remains appropriate.
The February Budget Speech brought plenty of good news, with improving fiscal conditions and projected real GDP growth of 1.6% for 2026. The JSE peaked at around 129 000 points in February, and inflation was right on target at just over 3%. Aside from concerns that elevated AI-related valuations might prove unsustainable, 2026 looked set to be a strong year for investors.
Fast-forward to October and it feels like we are in a different world. Fuel prices have risen to record highs, placing consumers and businesses under significant pressure and contributing to higher inflation, with headline CPI reaching 4.4% in August. In response, the Reserve Bank has raised the repo rate to 7.25%, adding further pressure, while GDP growth projections are now down to 1%.
However, amid all the negativity around fuel prices, it’s easy to lose sight of some positive developments. We expect the finance minister to announce a tax windfall, driven by higher metals prices and improved tax collection. This is likely to support a lower forecast budget deficit, which in turn should be good news for the trajectory of the debt-to-GDP ratio. We also expect the Minister to announce the introduction of a so-called “fiscal anchor”, a legal framework limiting the government’s ability to add excessively to the debt burden. A stronger fiscal position will be welcomed by the credit rating agencies. Over time, a better sovereign credit outlook should benefit the economy and markets by boosting investor confidence and lowering government borrowing costs.
One wild card for the MTBPS is whether National Treasury will use some of the tax windfall to reduce fuel costs at the pump for businesses and consumers. The upcoming local elections could provide a political incentive for National Treasury to do this at a time when the fiscal conditions provide some room to manoeuvre.
So, if we look past the acute pain felt by consumers and businesses at the pump (and the resulting bump in inflation), there is a fair amount of good news hiding under the surface for the Minister to highlight in the MTBPS.
What does this all mean if you are about to retire?
For someone far from retirement, a period of market weakness is a normal part of the investment journey, and the right response is usually to keep investing in a well-diversified portfolio targeting inflation-beating returns. However, for someone retiring now, timing matters more: their capital must be converted into an income stream precisely when markets are under pressure.
This creates what is known as retirement-timing risk: the risk that a market downturn immediately before retirement reduces the capital available to generate a sustainable income during retirement. A related concern is sequence-of-return risk. If markets fall in the early years of retirement, income drawdowns must be funded from a depressed portfolio. This leaves fewer assets in the portfolio to benefit when markets rebound, so the portfolio may never fully recover, making future income less sustainable.
This does not mean someone approaching or in retirement should abandon growth assets altogether. Retirement may last for decades, and portfolio growth is needed for income to keep pace with inflation over time.
Instead, retirement planning should start with income requirements, distinguishing essential spending from discretionary spending. A guaranteed life annuity is a good way to cover essential spending because it pays a guaranteed income for life, and can also cover a surviving spouse. A living annuity, on the other hand, provides more flexibility, but the retiree carries the investment risk and the risk of running out of money. Depending on an individual’s needs, a combination of a guaranteed life annuity for a minimum level of income and living annuity for additional flexibility and participation in future market growth may be a good solution.
In the years leading up to retirement, or within a living annuity, a smoothed bonus portfolio can be very useful, providing these portfolios maintain exposure to growth assets while smoothing out short-term market movements. This may help limit the effects of severe market downturns just before or during retirement. In this way, they can be a valuable risk-management tool for investors close to, or in, retirement.
The events of 2026 are a reminder not to base retirement investment decisions on short-term market movements. The recent deterioration in markets and the emotional impact of very high fuel prices can easily push investors into decisions that damage their portfolios in the long term. The good news we can expect from the MTBPS is a reminder that short-term trends are poor indicators of long-term market movements.
For employers and retirement funds, the key is to construct a plan that is positioned to benefit from long-term growth, while remaining sustainable for members if markets, inflation and interest rates do not behave as expected. Alternative options include moving members from market-linked to smoothed bonus investments as they approach retirement, and making both guaranteed life annuities and living annuities available as part of the fund’s annuity strategy.
ENDS
