Retirement Planning – Investing in Property vs. an Annuity

retirement plan

Retirement is a subject that few South Africans between the ages of 18 and 40 really think about, but always worry about. As long as they can feel that they have safely put it off for some distant future date, they tend to set the worry aside and not really consider the options available to them to provide for the inevitable day they will be permanently excluded from the workforce and possibly left without an income.

The truth, regardless of how old you are, is that plans need to be set in place right now to ensure anything even approaching a comfortable retirement. The question, however, is what actions should you take? And, furthermore, what tools should you reach for?

For most ordinary working people who don’t have vast assets to fall back on, there are generally two options: 

  1. A retirement annuity, which is usually mandated by the employer, or 
  2. Investment in property. 

Which of these two options will help set up a better future?

It’s not an easy question to answer, as there are numerous variables at play in both cases. Both can provide excellent returns if handled well. However, if not managed correctly, the wrong choice could also leave you coming up short. As a rule of thumb, however, property investment brings the best returns by far. 

Let’s take an example of someone who is 35 years old and earning a salary of R30 000 per month. In order to continue earning a comparable amount after retirement at the age of 60, this person would need to set aside 17% of their monthly income for the next 25 years. This does not even take inflation into account. Once this investment matures, only a certain amount of it can be cashed out immediately. The rest needs to be reinvested into a pension instrument which would then pay out fixed amounts until death. This is almost guaranteed to leave the person earning far less per month than they would have while employed.

If that same person buys a property instead, taking out a 100% bond to the value of R1 000 000, he or she would not have to put any money down immediately and, by the time retirement age came around, the property would likely have already been paid off for five years, assuming that the bond has been managed properly. So, the newly retired person would have an asset that belongs entirely to him or her. Assuming that the property has been well maintained, it will have appreciated in value and could now be sold for more than the original purchase price, or it could be kept as a rental property. If the owner uses it as a rental property from the very beginning, he/she could make it self-sustaining, meaning that no money is coming out of his/her salary to make bond payments or do maintenance. At retirement, the property would, therefore, be both an asset and a continuous, long-standing source of income, with the owner holding both the capital through clear 100% ownership and also receiving rent.

There is no reason not to have a combination of both options. You could put your money away in a retirement fund, while also building up a portfolio of rental properties. This would naturally stand you in even better stead. A good financial advisor would be able to help you manage this mix of investments. If you choose only one option, however, property is the best one to go for, as long as you set up good plans and financial instruments to deal with the income flows that your portfolio would generate.  Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit

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