By Thomas Brennan
South Africa has a retirement solution hiding in plain sight and most people have never heard of it.
Only 6% of South Africans are on track for retirement. Another 38% say they can’t save anything at all. That’s not because they’re irresponsible, it’s because retirement savings compete with groceries, school fees and transport.
But what if I told you that you could retire as a millionaire by investing just R423 per month.
That’s how much a parent would need to invest from birth in a tax-free savings account (TFSA), invested in low-cost index funds, to build a portfolio worth around R1 million by age 60, assuming long-term returns of 10% a year.
The secret is time.
A contribution of R423 a month invested for 60 years can grow to R1 million. But delay the start and the cost rises sharply. Start at age 25 and you need about R1,330 a month. Start at 35 and the figure jumps to R3,020. Wait until 45 and you need almost R10,000 a month.
This is also why early retirement withdrawals are so damaging. Since the launch of the two-pot retirement system, nearly R57 billion has been withdrawn and around R15 billion has gone to SARS in tax. Every rand withdrawn today is a rand that loses decades of compound growth.
The TFSA remains South Africa’s most underused financial tool. And the annual limit just increased to R46,000. The lifetime limit remained at R500,000.
If parents maximised a child’s TFSA contributions by age 12 and left the investment untouched until age 60, the portfolio could grow to more than R100 million at a 10% annual return, which would generate almost R300,000 a month in tax-free dividend income.
Now that’s not a bad retirement!
Very few families can do that. But that’s not the point.
The point is that retirement security isn’t reserved for high earners. And it doesn’t have to compete with groceries and school fees. It’s about starting early, staying invested, and not withdrawing. Time does the heavy lifting that income can’t.
Starting at birth is 24 times cheaper than starting at 45. That’s the real retirement lesson hiding in the numbers.
Need help getting your savings on track? Chat to Siza Khula, Scrolla’s free AI money assistant.
Thomas Brennan is CEO and co-founder of Franc, a wealth advisor in your pocket.
This article was first published on Currency News and has been adapted by the author for Scrolla.
Pictured above: A woman on a beach in Cape Town.
Image source: Pexels
