South Africa has a retirement solution hiding in plain sight

Data released last month by Franc shows that only about one in three South Africans is on track for retirement. At the same time, 38% of respondents said they cannot find room in their monthly budget to save at all. That aligns closely with findings from the National Treasury and the 10X Investments Retirement Reality Report: most South Africans know they should save for retirement – they just don’t believe they have enough room in their monthly budget to do so.

And that is the uncomfortable truth about retirement planning. For many households, retirement savings are not competing with luxuries. They are competing with groceries, transport, school fees and debt repayments.

But understanding the numbers still matters, because retirement is ultimately funded in only a few ways – with time and discipline.

Let’s start with the most common “best-case” scenario: someone starts a retirement annuity at age 25, retires at 60, and wants an income of R10,000 per month in retirement, which is modest but manageable and above the median income of R8,000 per month. Assuming a 6% drawdown from a living annuity and no lump-sum withdrawal at retirement, they would need roughly R2m invested by age 60 to cover about 10 years of retirement. Stats SA’s 2025 mid-year estimates put life expectancy at birth at 69.6 years for women and 64 years for men – though a South African who reaches 60 can expect to live materially longer than the at-birth figure suggests, which is why retirement money typically needs to last longer than people plan for.

Assuming a net investment return of 8% a year, the monthly contributions required are surprisingly manageable – if you start early. A 25-year-old would need to invest roughly R870 per month.

The mathematics of compounding

Wait 10 years and the picture changes dramatically. Starting at 35 pushes the required contribution to around R2,100 per month. Starting at 45 increases it to roughly R5,800 per month. Delay until 55 and the required contribution explodes to more than R27,000 per month.

That is the brutal mathematics of compounding: the earlier years matter disproportionately more than the later ones.

It also explains why early withdrawals from retirement savings are so damaging.

Under the two-pot retirement system, members can access part of their retirement savings before retirement. For households under severe financial pressure, that flexibility may be necessary and even lifesaving. But it comes at a cost that is often invisible.

If someone withdrew one-third of their retirement savings just five years after starting their retirement fund, the eventual retirement capital would fall materially. Likewise, taking the maximum lump sum at retirement reduces the amount left invested to generate income.

In practical terms, a retiree targeting R10,000 per month could lose around five to six years of sustainable retirement income if one-third of the retirement capital is removed. In a country where many retirees already outlive their savings, that is not a trivial trade-off.

Which raises a more interesting question: what if retirement were funded differently altogether?

An intergenerational wealth tool

South Africa’s tax-free savings account (TFSA) is still profoundly underappreciated. Most people see it as a short-term savings product. In reality, it is potentially one of the most powerful intergenerational wealth tools ever created in South Africa. Under the 2026 budget, the annual limit was increased to R46,000, while the lifetime limit remains R500,000.

Now imagine you opened a TFSA for your child on the day of their birth, investing in low-cost index-tracking ETFs with an annualised return of 10% and a dividend yield of 2%. That’s not a fancy investment strategy – just a 50/50 split between the Satrix 40 ETF and the Sygnia Itrix S&P 500 ETF.

A reminder: contributions to a child’s TFSA count toward the child’s R500,000 lifetime limit, not the parent’s. The child is using their own future allowance, which is why this strategy works as an intergenerational wealth tool, but also why it has real long-term implications for that child’s adult tax planning.

To generate R10,000 per month in retirement income from dividends alone, the portfolio must still reach about R6m.

So the question becomes: how much needs to be contributed to reach R6m by age 60? The surprising answer is that, starting from birth with a 60-year investment horizon and 10% compounding, you would only need to contribute approximately R127 per month.

Interestingly, at R127 per month, the total lifetime contributions by age 60 would amount to only about R91,000, which is well below the R500,000 TFSA lifetime limit.

This highlights just how powerful early starts, tax-free compounding and a long investment horizon can be – in combination.

Investing in the future

By contrast, if someone wanted to fully utilise the entire R500,000 lifetime TFSA allowance evenly from birth until age 60, they would contribute about R694 per month. At a 10% annual return, that would grow to approximately R32.7m by age 60. At a 2% dividend yield, the retirement income would be roughly R54,500 per month tax-free without touching the capital.

And if that doesn’t blow your mind, consider the child whose parents max out the annual TFSA limit of R46,000 (about R3,833 per month) starting in the year of the child’s birth. The lifetime contribution limit would be fully utilised by age 11. (Bear in mind: this fully consumes that child’s lifetime TFSA allowance. They will have no remaining tax-free room as an adult, regardless of their own earnings.) Again, assuming a net total return of 10% per year and a dividend yield of 2%, with all dividends reinvested until retirement at age 60.

By age 60, that TFSA could theoretically grow to well over R100m. At a 2% dividend yield, the annual dividend income alone could exceed R2m, or roughly R200,000 per month, entirely tax-free.

Time matters

Of course, very few South Africans are in a position to fully fund a child’s TFSA from birth. But the example illustrates an important point: retirement outcomes are not determined solely by contribution amounts. They are determined by time and discipline. The tax treatment also makes an enormous difference. R1 invested for 60 years inside a tax-free structure behaves very differently from R1 invested for 20 years in a taxable one.

The broader lesson is that retirement planning is not a single product or a single decision. It is a sequence of decisions made over decades.

Retirement annuity contributions are tax-deductible and provide creditor protection. Pension and provident funds also force regular saving through employment. Yet TFSAs create extraordinarily long-term compounding opportunities. Similarly, property can generate retirement income, and businesses can become retirement assets. But none of those tools can fully compensate for starting too late or withdrawing too early.

South Africans often believe retirement security is reserved for high-income earners. Yet the numbers suggest something more nuanced. Income matters, certainly. But time matters far more.

In plain language, starting early means you can fund retirement for just R127 per month – nearly seven times cheaper than starting at 25, 16 times cheaper than starting at 35, and 46 times cheaper than starting at 45.

That means South Africa’s retirement crisis is not, fundamentally, an affordability crisis. It is a timing crisis.

Thomas Brennan is a co-founder of Franc, a South African fintech company that helps people invest easily and affordably.

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