Secure your child’s retirement before they leave school

Simon Brown Latest, Retire, Wealthy Maths

We all know the power of time and we also know that tax-free investing is great because you pay no tax on the dividends or profits.

But here’s a wild stat putting both to really powerful use.

One-off tax-free contribution

Say a child is born today and you put R36k (the current annual limit) into a tax-free account for them.

When they’re sixty-five they’ll have almost R3million and that will generate (using the 4% rule) some R117k a year tax-free – in today’s money (*see my assumptions at the end of the article).

Single tax-free deposit of R36k over 65 years

Single tax-free deposit of R36k over 65 years

Now nobody retiring on that, but let’s take it a step further.

Tax-free contributions up to lifetime limit (R500K)

Let’s put R36k a year into the new child’s tax-free account every year until the lifetime limit of R500k is reached (about 15 years) and the chart below shows just how this blows up into a vast amount of money.

Tax-free deposit of R36k until lifetime limit over 65 years

Tax-free deposit of R36k until lifetime limit over 65 years

Now at age sixty-five the tax-free account is worth over R27million and again using the 4% rule that generates some R1.1million a year. Now that’s almost R100k a month tax-free. That is very much enough to retire on.

But there’s more.

Seeing as the child’s retirement was sorted before they even left school, during their working life they never need to save for retirement.

They could spend those retirement savings, they could use it to support their parents in retirement or just take a lower-paid job. Heck, they could save like crazy and retire at forty. The options are endless and deeply empowering.

Problems? Well, two really.

Firstly children are already expensive and now you need to find another R36k a year per child and you’re doing your own tax-free contributions.

Secondly, at eighteen the money is theirs and they could blow it on anything they wanted. But you have those first eighteen years to make them money smart.

Simon Brown


7% real return. In other words, return less inflation.

This means that the money values are in today’s spending power.

Many of us avoid making financial decisions because we worry that we can’t do the maths. Luckily, there are only a few formulas you need to understand to make a good financial choices. This series of articles is dedicated to helping you understand how to do the calculations for yourself. Once you grasp these simple formulas, you can make better financial choices on the fly.