What is the wise decision once you’ve created some breathing room in your budget? Maybe you’ve been given a raise, finished paying off your car, or have finally managed to get some big expenses under control.

Now you’re facing that R5 000 monthly question – should you boost your retirement savings through your retirement annuity (RA), open a tax-free savings account (TFSA), or chip away at your bond faster?

With interest rates at among their highest in 15 years and the new two-pot retirement system changing the game, it’s worth taking a careful look at your options. Let’s break down what you need to think about.

Your retirement savings could be doing better for you. Use the 10X Effective Annual Cost Calculator to see if you could be getting more money out.

First, ask yourself these questions

Before diving into the options, consider your current situation:

• How confident are you about your emergency savings?
• What other financial commitments are you juggling?
• How important is it to you to have access to your money?
• What is your current tax situation?

Your answers will help guide your decision. And if you want to make sure you have all the facts, speak to one of our investment consultants, free of charge.

Extra bond payments: The ‘sleep well’ choice

With prime at 11% in February 2025, extra payments toward your bond could significantly reduce the interest you pay and your loan term.

Since South African home loans typically have floating rates, your interest rate will change as the prime rate changes. This means the actual interest you save through extra payments will depend on future interest rates.

If interest rates stay high for long, that can add up to a lot of interest saved – but each extra payment reduces your outstanding balance, which means you’ll pay interest on a smaller amount going forward. Plus, you’re building up equity in your home that you could access later if needed.

Retirement annuity: Tax benefits now, growth for later

Retirement annuities have become more interesting since September 2024 with the introduction of the new two-pot system.

Here’s what makes them worth considering:

• You get tax back now (up to 27.5% of your income or R350 000);
• Up to a third of new contributions can go into an accessible savings pot; and
• The rest grows tax-free towards your retirement.

For perspective: if you’re earning R800 000 annually, putting that extra R5 000 monthly into an RA could reduce your tax bill by about R23 400 per year. That’s like getting paid to save for retirement.

Use the 10X Retirement Annuity Calculator to do your retirement savings sums.

Tax-free savings account: Zero tax on growth

TFSAs are powerful because you never pay tax on the growth – no income tax, no dividends tax, no capital gains tax.

You can put in up to R36 000 per year with a lifetime limit of R500 000 of contributions.

But here’s the catch many people miss: if you withdraw money, you permanently lose that portion of your lifetime contribution limit. Think of it as a one-way door – once you take money out, you can’t put it back in above your remaining limit.

How these options play out

Let’s look at a common situation: You have a 20-year R1.5 million bond and are managing to save an extra R5 000 every month.

If it all goes to your bond:

• You could save more than R1 million in interest paid over the course of the bond;
• You could cut about nine years off your loan term, which means your bond payments will stop sooner; and
• You build up equity that you could access if needed.

The above assumes a fixed prime rate of 11.25%, 20-year loan duration, and the ability for the R5 000 payment to pay off the principal without penalties. As interest rates change, the values above will also change.

If it goes to a retirement annuity:

• You could reduce your annual tax bill by up to R27 000, depending on your income tax rate;
• You have limited access to your savings through the two-pot system for emergencies; and
• The R60 000 you save every year could help you build long-term retirement savings in a tax-efficient way.

If you put it into a TFSA:

• The maximum annual TFSA contribution is R36 000, so you will need to invest the balance of R24 000 in some other way;
• All growth in the TFSA is tax-free – no capital gains tax, no income tax, no tax on interest earned; and
• You have full access to your money (but remember the contribution limit impact).

Remember that for RAs and TFSAs the main determining factor of success is their returns and their fees over time. With your bond, the prevailing and expected future prime interest rate determines how effective it is to contribute more.

Do you know what you are paying in fees for your investments? If not, you should request a free comparison report with 10X to find out what exactly you are paying and whether you could do better.

Helping you make your decision

As one of South Africa’s most prominent independent investment managers, with over R50 billion in assets under management, 10X Investments offers tools to help you understand your options:

1. Our Tax Calculator shows potential RA tax savings;
2. Our RA Calculator helps you to see whether you will save up enough towards your retirement; and
3. Our investment consultants can explain our various investment products and funds, helping you make an informed decision about your future.

While we can’t tell you exactly what to do, we can help you understand these options better. Use our calculators to run your numbers, or speak with one of our investment consultants about our products and how they might fit into your plans.

The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250). The 10X Living Annuity is underwritten by Guardrisk Life Limited. 10X Investments offers a range of investment options directly to the public which can be accessed via the My10X investor portal online www.10x.co.za , via corporate pension funds as well as via your financial adviser.

Brought to you by 10X Investments.

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