By Adriaan Pask, CIO, PSG Wealth

As we approach tax year-end, many South Africans will be planning to top up their retirement annuities (RAs) and tax-free savings accounts (TFSAs). The discipline of maximising your annual R350 000 RA deduction limit and R36 000 TFSA allowance is the ideal foundation of a tax-efficient retirement plan. However, these important vehicles should be enhanced by equally disciplined broader savings and investment decisions to ensure you build the amount of retirement funds you will actually need.

For example, if you are earning an income that is sufficient to allow you to reach your RA and TFSA contribution annual limits, you would have contributed around R386 000 annually. This is ideal, 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 current income at retirement.

Understand 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: R1 000 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, spending R60 000 on a holiday. On the surface, you’re spending R60 000 today for a holiday, but the picture changes when viewed through a long-term investment lens. If that same R60 000 were to be invested for 20 years at an annual rate of return of 10%, it would grow to over R400 000. So, the real cost of your holiday is not R60 000 now – it is over R400 000 that could have been added to your retirement savings.

As life happens, incurring certain costs is unavoidable, but wasteful expenditure can be avoided. It is not simply about consuming today’s money; it systematically steals from tomorrow’s security. As such, delayed gratification can be a powerful wealth creation tool.

Cognitive biases can impact your retirement strategy

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 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, losing wealth through inaction or mistimed action.

However, perhaps the most dangerous 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.

Start with the end in mind

Start 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.

Retirement is fundamentally an investment 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.

The combination of tax discipline, investment discipline, and spending discipline will help you make the most of your retirement plan.