Retirement annuity contributions: How much should you be saving each month?

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Anyone with an RA planning for retirement may need to consider how much to contribute to their retirement annuity each month. The answer varies greatly based on individual circumstances, as there is no universal solution. You need to carefully consider factors like your age, income, expenses, current savings, long-term retirement goals, investment timelines, and the time remaining before retirement.

Contributions should be sustainable and consistent, rather than the maximum you can afford at any one time. It's important to review, evaluate, and increase your contributions gradually. This article will explore topics such as contributions, tax benefits, annual adjustments, fees, fund options, and the tools offered by 10X to assist with your retirement planning.

What is a retirement annuity and an RA contribution?

A retirement annuity (RA) is a long-term savings plan for retirement that offers significant tax advantages. Contributions benefit from tax deductions within certain limits: up to 27.5% of taxable income, with an annual cap of R430,000. Additionally, all growth within your RA is tax-free, meaning you do not pay capital gains tax, income tax, or dividends tax on your investments.

Contributions to your RA are the money you pay into it. These may be lump-sum or regular monthly payments, depending on your choices and circumstances. You will select the underlying funds in your RA, and your contributions will be invested in them to potentially grow and compound over the long term. At retirement, these savings will be invested in an annuity of some kind, and the annuity will then provide you with an income for your retirement years.

An RA may also be a good choice for a freelancer or self-employed worker with an unpredictable salary and no pension or provident fund. This allows you to continue saving for your retirement years while accommodating your earning style.

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Start with what you can afford consistently

Consistency is very important when it comes to your retirement savings. You would look to contribute regularly to your RA, rather than aiming too high and then stopping your contributions a little further down the line. A realistic monthly contribution makes more sense, as it is more likely that you will be able to keep this up consistently. When you are considering your contributions, you would want to look at factors such as your current savings, whether you are contributing to a pension or provident fund, your income, your expenses and your retirement goals.

Starting with a realistic contribution can also help you build confidence and create a habit. Once a debit order is in place, retirement saving becomes part of your monthly budget rather than something you need to remember or decide on each month. This can make it easier to stay committed over the long term, especially during periods when other financial priorities compete for your attention.

It is also important to note that retirement annuities have restricted access, so you would ideally want other, more accessible savings available in emergencies.

This is why your RA contribution should fit into your broader financial plan. You want to contribute enough to make meaningful progress towards retirement, without putting yourself in a position where you need to access long-term savings for short-term needs. Having emergency savings outside your RA can help you keep your RA focused on its intended purpose.

Increase your retirement annuity contributions over time

If possible, aim to gradually increase your RA contributions over time. Review your RA each year to decide on your annual increase. These increases can align with salary raises or bonuses. Contributions can be made through a regular debit order or as one-off lump-sum payments.

Increasing your contributions gradually can make retirement savings feel more manageable. Instead of trying to make a single large change, you can build your contribution level over time as your income improves or your financial commitments change. Even small annual increases can help your savings stay aligned with your long-term retirement goals.

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Your regular debit order can be easily adjusted to reflect changes, while lump sums can be added whenever you have available funds. Just make sure these contributions exceed your provider’s minimum limits.

Lump-sum contributions can be especially useful if your income is irregular, or if you receive a bonus, commission payment or once-off amount during the year. This allows you to strengthen your retirement savings without necessarily increasing your monthly debit order permanently.

You always want to ensure that your RA contributions keep pace with your salary growth or inflation. An annual review may help ensure that your contributions stay aligned with your financial goals and circumstances.

This annual review is also a good opportunity to check whether your current contribution still aligns with your retirement timeline. If you are closer to retirement, have fallen behind on your savings target, or have more disposable income, you may decide to increase your contributions where appropriate.

Consider your asset allocation

Your asset allocation is crucial to the potential growth of your capital. Research by Brinson, Singer, and Beebower shows that asset allocation plays a key role in the growth of your RA savings over time. The usual asset classes are: cash, bonds, real estate and equities.

When determining your asset allocation, consider your risk tolerance, investment horizon, and retirement objectives. Investors with a longer time frame might favour a higher proportion of growth assets, such as stocks or real estate. Conversely, those seeking more stability or with a shorter investment timeline might prefer a portfolio with more bonds and cash. Let’s have a look at the different asset classes in some more detail.

Equities have the potential to deliver returns above inflation. They have historically delivered returns above inflation by approximately 7% annually over long periods (based on JSE All Share Index performance versus CPI from 1960-2020). Equities give investors exposure to companies and economic growth, but they may also experience significant market declines. Value may fluctuate considerably over short periods, which means equities are generally more appropriate for investors with longer time horizons and the ability to tolerate volatility.

Bonds can provide income, diversification, and a measure of stability within a portfolio. They are usually less volatile than equities, but they are not risk-free. Bond values can be affected by changes in interest rates, inflation expectations and the ability of the issuer to repay its debt. While they’re seen as more conservative, they still may outperform expectations.

Real estate provides exposure to real assets and economic activity while generating income through rentals and distributions. It may contribute to long-term portfolio growth. However, listed property can be volatile and may be affected by interest rates, economic conditions, occupancy levels and changes in the property market. Real estate often serves as a good hedge against inflation.

Cash is usually considered the most liquid and stable of the asset classes. It is less likely to experience the same levels of volatility that you may see with growth assets. Cash may produce lower returns that struggle to outpace inflation, which can reduce purchasing power. Including offshore assets in your portfolio can improve diversification and reduce reliance on the local market's performance. Offshore investing also introduces additional risks such as currency fluctuations and changes in global markets. At 10X, investors have the freedom to choose from a range of funds, each with a different asset mix tailored to different investor profiles. Understanding your investor profile can help you choose an appropriate fund for your personal circumstances and retirement goals. Please visit our funds page to find out more about the funds on offer.

Don’t ignore fees when planning retirement annuity contributions

Investment performance is the gross result produced by the underlying assets. You, as the investor, keep the net return after fees. The effects of fees may be more noticeable when they are compounded over a long period, so you would ideally look to minimise the fees you pay. Let’s have a look at an example to help illustrate the effect of fees. We will assume the following information for our example:

• Starting capital: R0
• Monthly contributions: R5,000 at the end of each month
• Investment period: 30 years
• Gross annual return: 10%
• Inflation: 5%
• No withdrawals are made during the investment period, and contributions remain fixed

Scenario 1 - 1% fees: After 30 years, your RA will grow to an estimated value of R3.4 million. (Inflation-adjusted value)

Scenario 2 - 3% fees: After 30 years, your RA will grow to an estimated value of R2.4 million. (Inflation-adjusted value)

We can see how small differences in fees may lead to major differences in retirement outcomes. This example is for illustrative purposes only and real results may vary. You can learn more about fees here. Let’s take a closer look at some key terms:

• Total Expense Ratio (TER): Ongoing expenses within an investment fund, calculated according to the applicable standard. (A way to compare the operating costs of similar funds, but it is not the final cost)
• Total Investment Charge (TIC): The total investment charge, which combines the TER with transaction costs within the fund. (A way to compare the full cost of the investment portfolio itself)
• Effective Annual Cost (EAC): An annualised estimate of the impact of product, investment management advice, administration fees, and all other applicable charges.

The EAC gives investors a standardised way to understand the full cost of holding an investment over time. This metric combines various charges associated with an investment into a single percentage, allowing investors to compare costs more easily on an annual basis. It was introduced by ASISA in 2015. Assuming all other factors are equal, a lower EAC generally means that a larger portion of your money remains invested and available to potentially earn returns. A higher EAC may place greater pressure on net returns as fees accumulate over time. You may notice the following fees on your statement:

• Management fees: These are the fees charged for the running of the fund.
• Advisor fees: If you have an advisor, they will charge fees for their advisory services. There may be an initial and an ongoing fee charged.
• Administration fees: There will also be administration fees charged. This will be for tasks like tax and reporting for the fund.

At 10X, we strive for low-cost, simple and transparent fees. Please explore our products to find out more about fees. Generally, we charge fees of less than 1% on retirement products, depending on the product chosen and the amount invested.

Use a RA calculator to test different scenarios

The 10X retirement annuity calculator is a useful tool you may like to use when planning your RA contributions. It is one of the many free online tools available on the 10X website. This can be especially helpful when you are unsure where to begin or want to compare different contribution options before making a decision. Instead of guessing what might be affordable or appropriate, the calculator gives you a practical way to test different scenarios and see how your choices may affect your long-term retirement savings.

This calculator allows you to select various contributions and time horizons to see how they impact your final RA values. You can also see the effects of starting your contributions earlier, adding lump-sum contributions, or increasing your monthly debit order. This tool will not guarantee results, but it can be a useful planning lens for comparing scenarios and helping with your decision-making.

You can use this information to review whether your current contribution is still suitable, whether you may need to increase it over time, or whether a once-off lump sum contribution could help you strengthen your retirement plan. While the results are only estimates, they can help make contribution planning feel clearer and more manageable.

How 10X supports investors

At 10X, we support our investors in several ways. As mentioned, you will have access to a range of free tools on our website which can help you with your planning. For example, the EAC calculator is another great tool that allows you to compare and evaluate 10X's fees with those of other service providers. You will notice that the fees we charge are transparent, cost-effective, and easy to understand, so you can rest assured there will be no surprises.

We also follow an index-based investment approach alongside a more active approach to asset allocation. Our aim is to build portfolios that are oriented towards long-term retirement goals. This means the focus is not on chasing short-term market movements, but on building a disciplined investment approach that supports long-term retirement planning. Your RA is designed to grow over many years, so the investment strategy should remain aligned with your time horizon, risk profile and retirement objectives.

Should you need any additional support when it comes to your RA, you are able to contact the 10X investment consultants. These efficient and skilled professionals are here to assist with any queries you may have regarding your retirement annuity. This support is useful for helping you understand contribution choices, fund options, fees or the tools available on our website. You’re still in control of the final decision, but you have access to clear information and practical support.

Final thoughts on retirement annuities

There is no single 'correct amount’ for RA contributions. Rather, you should assess your personal situation to choose a sustainable contribution level. Consistent contributions are key, and increasing them in line with salary rises is advisable. Bonuses can also be added to your RA. It’s essential to review your RA annually to ensure your contributions align with your long-term financial goals.

Additionally, keep fees low and verify that your fund choice matches your goals, investment timeline, and risk tolerance. For more guidance on managing your payments, feel free to contact our knowledgeable 10X investment consultants who are ready to assist you.