The smart parent's secret to building wealth for their children

As parents, we save for school fees and maybe open a Tax-Free Savings Account for our children. But there's another powerful wealth-building strategy many of us overlook—one that could change your family's financial future while securing your own.

The humble Retirement Annuity (RA). While typically seen as a vehicle for your own retirement, smart parents are discovering RAs can also create a lasting financial legacy for their children.

Securing Your Future First Helps Your Children Most

As parents, we face a fundamental challenge: How do we build wealth for our children while ensuring we won't become a financial burden to them later?

The instinct to prioritize our children's immediate needs is natural, but there's wisdom in the airline safety instruction to "secure your own oxygen mask before helping others."

Financial independence in your retirement years is actually the first gift you can give your children. Adult children who support retired parents often delay their own wealth building, creating a cycle that can persist across generations.

Using 10X's Retirement Annuity Calculator, you can see the difference between starting RA contributions early versus waiting. For a 35-year-old parent, investing R2,000 monthly until age 65 could build a significant retirement fund (assuming inflation plus 5.5% annual returns, net of fees).

How Your RA Can Benefit Your Children

The power of an RA as a wealth transfer tool works follows this process:

1. Make regular contributions to your RA during your working years
2. Benefit from tax-efficient growth for decades
3. At retirement, convert your RA into a living annuity
4. Draw a sustainable income while maintaining growth potential
5. Designate your children as beneficiaries of the remaining living annuity balance

Unlike a life (guaranteed) annuity, which typically ends when you pass away, a living annuity can transfer wealth directly to your designated beneficiaries—creating a financial legacy for your children.

The New Flexibility: Two-Pot System Benefits

The new two-pot retirement system, launched in September 2024, makes RAs even more family-friendly by providing limited access before retirement.

Under this system, your retirement contributions are split into two parts:

• Savings Pot – This allows access to your funds before retirement. While designed primarily for emergencies, this flexibility could help with major family expenses if absolutely necessary. Remember that withdrawals are taxed at your marginal income tax rate.
• Retirement Pot – The larger portion of your savings goes here, preserved for retirement.

For parents, this creates a more balanced approach. While your main goal remains building retirement wealth that can eventually benefit your children, you now have some flexibility for significant family needs.

10X's Two-Pot Calculator can help you understand how your contributions would be split and grow over time under this new system.

The Power of Time + Tax Benefits

Let's look at a practical example with real numbers: Thabo, age 35, contributes R2,500 monthly to his RA, planning to retire at 65. Assuming returns of inflation plus 5.5% (net of fees), here's how his investment would grow in today's money:

• At age 45 (after 10 years): R407,500
• At age 55 (after 20 years): R1.1 million
• At age 65 (after 30 years): R2.3 million

From this R2.3 million (in today's purchasing power), Thabo could draw a monthly income of nearly R8,000 in retirement – that's more than triple his original R2,500 monthly contribution! And here's the really powerful part: if he manages his withdrawals wisely during retirement (around 4% annually, which our internal simulations suggest is sustainable over the long term), most of that original R2.3 million could be inherited by his children when he passes away, creating a lasting financial legacy.

While market performance will inevitably fluctuate in the short term, these projections become more reliable over the long investment horizon of 30+ years. History shows that patient, disciplined investors who stay the course through market cycles are typically rewarded.

The RA advantage comes from two main sources:

1. Tax-deductible contributions – Thabo can deduct his RA contributions from his taxable income (up to certain limits), effectively reducing his tax bill each year. 10X's can show you how much you could save.
2. Tax-efficient growth – All growth within an RA compounds without being taxed along the way (though withdrawals will be taxed during retirement).

With an investment horizon stretching 30+ years, even after accounting for inflation, the final value can represent significant wealth that could eventually benefit your children.

RA vs TFSA: Different Tools For Different Goals

Many parents wonder whether they should focus on an RA or TFSA when planning for their children's future. Here's a simple comparison:

The ideal approach for many families is a combination: use TFSAs for direct benefits to your children (like education), while building your RA for your retirement security first, with the potential to benefit your children later.

Simple Steps To Building Your Family's Financial Future

If you're considering an RA as part of your family financial plan, here are key steps:

Step 1: Get your retirement savings on track

Use 10X's Retirement Annuity Calculator to see if you're saving enough for your own financial independence.

Step 2: Maximize tax benefits

Determine the optimal contribution level to reduce your tax bill while maintaining your current lifestyle.

Step 3: Plan for the long term

When setting up a living annuity in retirement, consider a sustainable withdrawal rate that preserves capital for potential transfer to beneficiaries.

Step 4: Balance with other investments

Complement your RA with more accessible investments for shorter-term family goals.

Already have an RA elsewhere? Speak with a 10X investment consultant about our low-fee approach and how it could help maximize your retirement savings.

Conclusion: A Smart Approach to Family Wealth

The most powerful way to help your children financially isn't just through direct gifts, but by ensuring your own retirement security first. A well-structured retirement plan using RAs and eventually living annuities creates a foundation that can benefit both you and potentially your children.

By taking advantage of tax benefits, long-term growth, and the new flexibility of the two-pot system, parents can build wealth while ensuring they remain financially independent throughout retirement.

The greatest gift may be the example you set through prudent financial planning and the security of knowing you won't become a financial burden to your children in your later years. Any wealth you're able to pass on becomes an added bonus.

Speak with a 10X investment consultant today to learn how our retirement products can help you achieve your family's financial goals.