nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Tax-free savings account versus retirement plan

4 Comments

Tax-free savings accounts have recently been introduced. Even though they were not intended to be used as a retirement vehicle themselves (and more a medium-term savings vehicle), this article compares using a tax-free savings account as a long-term savings plan for retirement against a retirement fund. The tax-free savings account seems to provide slightly higher returns, but only under the given assumptions and conditions used in the calculations. There are obviously other important factors to be considered, such as the limits imposed on tax-free savings accounts, and overall pension funds appear the best option for most South Africans.

http://www.moneyweb.co.za/uncategorized/taxfree-savings-account-vs-retirement-plan-3/

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4 thoughts on “Tax-free savings account versus retirement plan

  1. Competition time!!! How many errors can you find in this calculation? And what assumptions is this implicitly making?

    Can you build a spreadsheet model of these 2 savings options?

    This would make for a GREAT exam question 🙂

  2. Apologies, I didn’t go back to actually check that the calculations were correct. I guess I placed too much trust in the internet 🙂

  3. No, it’s fine – this is a real challenge to think about it. It should be about now that you all start discovering that newspaper people don’t actually know much about finance. So I really do want you lot to think about how to model this properly! 🙂

  4. The tax free savings seems like a good idea and gives people a chance to access their funds at any time. I’m just worried that if withdrawals are tax free, pensioners might end using up all their accumulated funds, leaving the burden of supporting old people to the state.

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