The dream of a comfortable retirement is something we all share.
But the reality in South Africa is concerning.
Only 6% of South Africans can retire comfortably by age 65, even those who have access to company retirement funds.
While employer-sponsored funds provide a basic safety net, they often fall short of covering the lifestyle you want after retirement.
The Retirement Savings Gap
Many people assume that contributing 10% of taxable income each year is enough.
Unfortunately, this leaves a shortfall of 69% below what is required for a secure retirement.
Let’s look at an example:
- You start with an annual income of R20,000 at age 30.
- You contribute 10% of your taxable income each year.
- By age 65, the income from your retirement savings would be just R6,000 per month in today’s purchasing power.
That is far below what is needed for financial security.
Here are some of our top recommendations to enhance your retirement savings:
Exploring Additional Retirement Savings Options
Retirement Annuities (RAs)
A retirement annuity is a great way to build your future savings while enjoying tax benefits right now.
You can contribute as much as you like, but only up to 27.5% of your taxable income (capped at R350,000 per year) qualifies for a tax deduction. This helps lower your taxable income, while your investment grows without paying capital gains, dividend, or interest taxes.
When you retire at 55 or later, you can take up to one-third of your savings as a lump sum. The first R550,000 of this amount is completely tax-free!
The remaining funds will go into an annuity, turning your savings into a regular income for life. However, your money stays locked in until you turn 55—unless you become permanently disabled or officially emigrate. This ensures you aren’t tempted to dip into it too early.
Tax-Free Savings Accounts (TFSAs)
A Tax-Free Savings Account (TFSA) is a simple and powerful way to grow your money without paying tax on your returns.
You can contribute up to R36,000 per year, with a lifetime cap of R500,000. This gives you more than a decade of tax-free investing, allowing compound growth to work in your favor.
TFSAs are available in different forms: fixed deposits, money market funds, equity funds, and multi-asset funds. The real benefit comes from long-term growth, so investing in something with higher growth potential, like equities in a unit trust, can make a big difference over time.
The way you contribute matters too. Setting up a monthly debit order of R3,000 could give you an edge over contributing the full R36,000 all at once at the end of the tax year. The earlier your money is invested, the longer it has to grow.
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Reasons to Save Beyond Company Retirement Funds
1. Inflation will chip away at your money – Prices go up, but your retirement savings might not keep up. This is especially true for things like healthcare and everyday living costs. Having extra savings helps protect your future purchasing power.
2. You might live longer than you think – That is great news, but it also means your money needs to last longer. Relying only on your company’s fund could leave you short later in life.
3. Do not put all your eggs in one basket – If all your retirement savings are tied to your employer’s fund, you are at risk if the company struggles (think Steinhoff). Having personal savings gives you an extra layer of security.
4. Your company fund will not cover everything – Most employer-sponsored plans only replace a portion of your final salary, which might not be enough. Saving on your own helps bridge that gap.
5. More freedom and more choice – Company funds come with rules on when and how you can use your money. With personal savings, you get to decide when and how to access your funds, giving you more flexibility in retirement.
