Making the most of your retirement plan

However, the real question we should ask is: are these important foundations being enhanced by equally disciplined broader savings and investment decisions?

Why the tax benefits matter – and why they are not enough

Let’s be clear: tax-deductible retirement savings and TFSAs are powerful tools that should absolutely form the foundation of your retirement plan. But the discipline must extend beyond these vehicles because maximising your tax deduction is often insufficient to build the retirement funds you will actually need. If you are earning an income that is sufficient to enable full utilisation of your R350 000 RA deduction, maximising your RA and TFSA contributions probably means you’ve contributed around R386 000 annually to tax-advantaged investment vehicles. This is excellent, but even if you start doing this at a young age, and continue doing so for 40 years, research shows that it will be insufficient to sustainably replace even 50% of your income at retirement.

Understanding how your money works: the latent potential of every rand

When we talk about long-term retirement planning, we need to fundamentally reframe the way we think about money. Every rand you hold contains latent potential, and R1 000 that you’re holding today won’t be worth R1 000 in the future. For example, if invested at a reasonable annual rate of return of 10%, that R1 000 will grow to R6 727 in 20 years, so the true cost of spending that R1 000 wastefully isn’t R1 000 – it’s R5 727 in foregone future wealth.

This perspective transforms how we should evaluate financial decisions. Consider, for example, a R600 000 car purchase. On the surface, you’re spending R600 000 today for transportation, but the picture changes when viewed through a long-term investment lens. If that same R600 000 were to be invested for 20 years at an annual rate of return of 10%, it would grow to over R4 million, so the real cost of that car is not R600 000 now – it is over R4 million that could have been added to your retirement savings.

As life happens, incurring certain costs is unavoidable, but be careful of wasteful expenditure. The true cost of poor spending decisions is vastly greater than what is commonly perceived. Wasteful spending does not simply consume today’s money; it systematically steals from tomorrow’s security. On the other hand, delayed gratification can be an immensely powerful wealth creation tool.

Solid financial plans help reduce the likelihood of costly mistakes

Even the most sophisticated investors fall prey to behavioural biases that undermine their retirement outcomes. Research consistently shows that cognitive biases – particularly overconfidence, present bias, and regret aversion – lead to poor retirement decisions.

Present bias causes us to prioritise today’s consumption over tomorrow’s security, making it painfully difficult to maintain disciplined savings habits. Overconfidence often drives investors to trade excessively, concentrate portfolios unwisely, or time markets with false precision. Regret aversion causes us to hold losing positions too long or sell winning positions too early, destroying wealth through inaction or mistimed action.

However, perhaps the most insidious bias is what economists call our ‘defective telescope’, which is our inability to accurately imagine our future selves. We cannot viscerally feel what it’s like to be 70 with insufficient income. This psychological blind spot causes investors to under-save systematically, then over-conserve once retired, and often die with substantial unspent wealth that could have funded a richer life.

Starting with the end in mind: A different approach

Rather than fixating solely on maximising this year’s tax deductions, complement that foundation with deliberate reflection on your actual retirement needs. Consider the lifestyle you want, what it will cost (accounting for inflation), and how long might you live. Then work backwards to understand what action will be required to reach these goals.

This exercise often reveals uncomfortable truths. You may need to save more, work longer, or adjust expectations. But confronting reality early gives you options. Discovering the shortfall at 64 gives you none.

The investment advantage

Here’s the final insight: retirement is fundamentally an investment issue, not just a tax deduction issue. The discipline of maximising your RA and TFSA deductions is essential, but it operates in support of a larger goal: deploying capital wisely to generate the returns necessary for a comfortable retirement.

As we approach year-end, you should certainly maximise your tax-deductible contributions, as this forms your discipline foundation. But spend even more time ensuring these contributions – together with additional savings – are invested wisely across your full portfolio. Equally important is scrutinising your spending decisions – not only for their immediate impact, but also for their hidden cost to your future self. Every wasteful purchase detracts from decades of potential wealth creation. It is the combination of tax discipline, investment discipline, and spending discipline that will truly help you make the most of your retirement plan.