Lesson 3: Retirement & the RA

Retirement feels irrelevant at 25. That's exactly why the maths works so absurdly well at 25.

The deal

Retirement contributions — pension, provident fund, or your own RA — are deducted from your taxable income, up to 27.5% of income (max R350,000/year). SARS effectively pays part of every contribution at your marginal rate: at 26%, a R1,000 contribution costs you R740. At 41%, it costs R590.

The trade: the money is locked away, and withdrawals at retirement are taxed — usually at a lower rate than you paid while working. You're arbitraging your own tax rates across time.

The two-pot system

Since September 2024, contributions split automatically:

• One-third → savings pot: withdrawable once per tax year (min R2,000), but taxed at your marginal rate — an expensive break-glass option.
• Two-thirds → retirement pot: locked until retirement, must buy an income when you get there.

The system exists because people used to cash out entire pensions when changing jobs. Best practice: pretend the savings pot doesn't exist.

Why starting early is cheating

Compounding is exponential: money invested at 25 has ~40 years to double, and double, and double again. A rough rule — every R1 invested in your twenties does the work of R3–R4 invested in your forties. The person who saves R1,500/month from 25 to 35 and then stops often retires with more than the person who saves R1,500/month from 35 to 65.

Your move

If your employer offers a fund with a match, take every rand of it — it's a guaranteed 100% return. Beyond that, see what a contribution would do to your tax in the RA calculator.