The short answer, and why it depends on your situation

Reducing your drawdown after a crash can be powerful, but only in specific conditions. It helps most when you are early in retirement, when your starting drawdown rate is already high, when the market fall is large, and when the rand reduction is meaningful rather than symbolic. In those cases, drawing less means selling fewer units at depressed prices, which leaves more capital invested to recover.

It helps far less when you are late in retirement with a shorter remaining horizon, when you are already drawing a modest rate, or when the cut you are considering is too small to change the arithmetic. In those situations the more important questions are how you fund your income during the downturn and whether your portfolio is positioned to participate in the recovery at all.

Why a market crash feels different when you are retired

During your working years, a market fall is almost good news. You are still contributing, so a lower market means you buy more units at a discount, and time is on your side to wait for the recovery. The instinct to "buy the dip" makes sense.

In retirement the relationship inverts. You are no longer adding money; you are taking it out. When the market falls and you keep drawing the same rand income, you become a forced seller at exactly the wrong moment, liquidating more units to raise the same amount of cash. Each of those units is one you cannot sell later at a higher price. The mindset has to shift from accumulating to protecting, and that shift is uncomfortable precisely because it runs against decades of habit.

This is also where emotion does the most damage. The fear of running out of money is real and rational, but acting on it impulsively — switching everything to cash, stopping income abruptly, or cutting too deep — tends to lock in losses rather than prevent them. In practice, the retirees who come through downturns best are usually the ones who had a plan before the fall and resisted the urge to rewrite it during the worst week.

Sequence of returns risk: the engine behind the danger

The technical name for the problem is sequence of returns risk: the risk that poor returns early in retirement — when your balance is large and withdrawals are underway — permanently damage how long your money lasts, even if the long-run average return turns out fine.

While you are saving, the order of returns barely matters; a good decade and a bad decade in either sequence land you in a similar place. Once you are withdrawing, order becomes everything. Losses in the first years compound against a large balance that is also being drawn down, and later gains cannot fully undo the damage. Researchers Wade Pfau and Michael Kitces describe the five years either side of retirement as the "fragile decade" or "retirement red zone" — the window of maximum vulnerability. Pfau's work is often cited for the striking idea that a very large share of the eventual outcome, in the order of three-quarters, is shaped by the returns of just the first ten years.

Two retirees can earn the identical average return over a decade and end up in very different places — purely because of the order in which those returns arrived.

Picture two people retiring on the same day with the same balance, drawing the same income, and earning the same average return across ten years. The only difference is timing: one meets a sharp fall in year one or two, the other meets the same fall near the end. The first retiree is selling units cheaply while the balance is at its largest, so the portfolio has far less left to ride the recovery. The second draws through the bad year when the balance is already smaller and the damage is contained. Same average, very different runway. (This is an illustrative hypothetical, not a forecast.)

This is why drawing the same rand amount after a fall accelerates depletion. The percentage you are effectively withdrawing has quietly risen — the same rand figure is now a bigger slice of a smaller pot — and you are taking that slice by selling more units than before.

What recovery actually requires

A market that falls 25% does not need a 25% gain to get back to where it was; it needs roughly a third more than that, because the gain is calculated off the lower base. Now add withdrawals to that climb. Every rand you draw while the portfolio is digging out of the hole is a rand that is not there to compound when the recovery comes.

The real cost, then, is not the paper loss you see on the statement. It is the units permanently sold at low prices to fund income during the fall. Reducing drawdown does not make the market recover faster — nothing you do as an individual can — but it does reduce how many units you are forced to sell cheaply, which leaves more invested capital intact for the rebound. The benefit is real, but it is indirect, and that distinction matters when you weigh how hard to cut.

What South African market history shows

It helps to replace fear with evidence. Two recent crashes bracket the range of what recovery can look like on the JSE.

In the 2008 global financial crisis, the fall was steep and the climb back was a slow grind. By most accounts the All Share Index only regained its pre-crash level around late 2010 — roughly eighteen months after the March 2009 low. A retiree drawing income through that period felt the recovery take years, not months.

The 2020 COVID crash was the opposite. The market fell about 25% from its January 2020 high and had its worst single day since 1997 in mid-March. Yet South African markets had largely recovered their losses by roughly November or December that year, and the All Share was up in the order of 54% over the twelve months to end-March 2021 — a textbook fast V-shaped recovery.

The topic is current again. In March 2026 the JSE was reported to be heading for its worst month since 2008, knocked by geopolitical conflict and a slump in precious-metals shares. If you are reading this while your statement is in the red, you are not alone, and you are not the first.

Flexible versus fixed drawdown: two ways to take income

How you set your income in the first place shapes how exposed you are to a crash. There are broadly two approaches, and a useful middle path between them.

The "rand plus inflation" approach fixes your income in rand terms and increases it each year for inflation. It feels stable and predictable, but it carries a hidden risk: because the rand amount ignores what the market is doing, a fall quietly pushes your effective drawdown percentage higher, accelerating exactly the depletion you are trying to avoid.

A percentage-of-portfolio approach takes a set percentage each year, so your income automatically falls in bad years and rises in good ones. It protects the capital but makes your income unpredictable, which is hard if your essential expenses absorb most of your spending.

Between them sits dynamic spending. Vanguard's research describes setting a target withdrawal with an annual ceiling and floor — in their illustration, around a +5% rise capped in good years and a −2.5% trim floored in bad ones — so income flexes within sensible limits instead of swinging wildly. One finding is worth underlining: the willingness to accept a slightly lower floor (cutting a little in down years) helps the portfolio more than a higher ceiling hurts it. In other words, small, infrequent cuts in bad years are disproportionately valuable. Rules-based "guardrail" systems such as the Guyton-Klinger method formalise this, triggering a pre-agreed cut after a downturn and a raise after strong markets — turning an emotional decision into a calm, mechanical one.

Before you cut your income: four alternatives to weigh first

For many retirees, the right response to a crash changes nothing about the headline income and quite a lot about everything around it. Work through these before reaching for the drawdown lever.

When reducing your drawdown makes the biggest difference

There are clear situations where cutting income is genuinely the right call. The benefit is largest early in retirement, when the money has to last longest and sequence risk is at its peak. It matters most when your starting drawdown rate is already high, and when the cut is large enough to register rather than a token gesture.

South Africa's living annuity rules require holders to draw within a band of 2.5% to 17.5% of the value each year, reviewable once a year on the policy anniversary. The upper end of that band — the point where you are drawing 17.5% — is sometimes called the point of ruin: beyond it you cannot increase your rand income further, and inflation then erodes your purchasing power year after year. The crucial misreading to avoid is treating 17.5% as a "safe" ceiling. It is not. ASISA's prudent guidance points to something closer to 4%–5% in the first decade of retirement and below 8% later, and the FSCA's draft default-annuity work has floated recommended levels of roughly 5% at age 65 rising toward 7% by 85.

How much does a modest change matter? Allan Gray illustrated that nudging income from 4% to 4.5% can reduce the sustainability of a portfolio over a 30-year horizon by roughly 15%. That is the encouraging flip side of the same coin: if a small increase does that much harm, a small, well-timed decrease can do a meaningful amount of good. The core principle underneath all of it is simple — if the percentage you draw exceeds your portfolio's real, after-inflation return, you are steadily liquidating capital.

When reducing your drawdown makes little difference

Equally, there are situations where cutting income is mostly symbolic. Late in retirement, with a shorter remaining horizon, sequence risk has largely passed and the maths simply matters less. If you are already drawing a low, prudent rate, there is little excess to trim and the gain is marginal. And if the cut you are considering is too small to be felt — shaving a fraction of a percent off an already-modest income — you may be sacrificing comfort for a benefit that rounds to nothing.

In these cases, the energy is better spent confirming that your cash buffer is intact, that you are not selling growth assets unnecessarily, and that your plan is built for the long inflation-adjusted haul rather than the next few volatile months. The same percentage cut has a very different impact at 63 than it does at 83.

The behaviour trap: why retirees panic, and what it costs

Most of the lasting damage in a crash is self-inflicted. Several well-documented biases work against us at exactly the wrong moment. Loss aversion means a loss hurts about twice as much as an equivalent gain feels good, so falling values trigger an outsized urge to act. Recency bias whispers that because the market has fallen, it will keep falling. Herding makes us reach for the exit because everyone else seems to be.

The cost shows up in the data. Studies of the gap between fund returns and the returns investors actually capture — Morningstar's "Mind the Gap" work, and DALBAR's long-running analysis — consistently find that mistimed buying and selling leaves real money on the table, and that the gap widens sharply in volatile years. The lesson is not that emotion is a personal failing; it is universal. The lesson is that a plan and a calm second opinion exist precisely to stop fear from making an irreversible decision on a bad week.

Common mistakes I see after a correction

• Switching the whole portfolio to cash at the bottom, crystallising the loss and missing the recovery.
• Cutting income too deeply out of fear, sacrificing quality of life for a benefit far larger than the situation required.
• Doing nothing at all when a meaningful, early adjustment would genuinely have helped — complacency is also a decision.
• Treating the 17.5% maximum as safe, and drawing far above a sustainable rate without realising it.
• Ignoring personal inflation. CPI averaged just 3.2% in 2025, but a retiree's own costs — weighted toward healthcare and specialised housing — tend to rise faster than the headline figure. A plan that defends against a visible crash while quietly losing to invisible inflation is not truly resilient.

A practical annual review for retirees

You can only change your living annuity drawdown once a year, on your policy anniversary, so that date is your natural checkpoint. Whether your drawdown remains sustainable for your age is the central question to revisit each year.

Frequently asked questions

How AS Brokers helps

A crash is exactly the moment when a calm, evidence-led review earns its keep. The value is not in predicting the market — no one can — but in helping you see clearly which of your decisions actually move the needle, and which are fear dressed up as prudence. Often the most valuable outcome of a review is the confidence to make no change at all, knowing your plan can withstand the storm.

If your living annuity has fallen and you are weighing whether to reduce your income, it is worth talking it through before your next policy anniversary. Speak to an AS Brokers adviser for a professional review of your drawdown, your cash buffer and your long-term sustainability.

This article is educational content and does not constitute personalised financial advice. It does not guarantee returns or predict future investment performance. The value of investments can rise as well as fall. Statistics and rules referenced are drawn from sources including ASISA, National Treasury, the FSCA and published research, and should be verified against current sources. Living annuity decisions depend on your individual circumstances; please obtain professional advice before making changes.