Is It Too Late To Open a Tax-Free Savings Account at 55?

If you're in your 50s or you have a parent who is and you're wondering whether it's too late to open a Tax-Free Savings Account, this episode is for you.

A 55-year-old listener sent in a question asking whether a TFSA is still worth opening at their age. I ran the numbers, and honestly? The results might surprise you.

Whether you can put away the full R46,000 a year or just R10,000, ten years of consistent, tax-free growth still adds up to something seriously worth having.

It is not too late — and by the end of this episode, you'll know exactly why.

#PersonalFinance #WomanAndMoney #LivingBelowYourMeans #MoneyMindset #WealthBuilding #FinancialFreedom #SouthAfrica #MoneyTips #investing

Transcript

SPEAKER_00 0:11

Hey Drive, welcome back to my channel, Kinna Mabalomaku. Haven't seen you in a little bit, but I am still here. So today I want to answer a question that one of the tribe members asked here on YouTube. So she mentioned that she is 55 years old and she wanted to find out if she should open a tax free savings account. Asking, is she late? Can she still open it? Or that rain has passed? It is definitely not late. So I am explaining today why, if you are watching this, you are above 50. You should start your tax-free savings account. Okay, so back to her question. She is at the age of 55, and her company's retirement age is 65. So you agree with me that she still has 10 years before retirement. And I think there's something about age. When we hear 55, we're thinking someone is old. Absolutely, absolutely 100% not. You still have time and you should start your tax-free savings account. So you have 10 years. Remember, the tax-free savings account limit is 500,000, right? And the maximum that you can contribute every single year is 46,000 rand. So again, as always, let's do the calculation together. 500,000 divided by 46,000, that is 10 years, almost 11 years. So you agree with me, she is still in line to reach that uh 500,000 maximum. So she has got 10 years, she's 55. At the age of 55, at the age of 65, rather, at the age of 65, she would have invested for 10 years. And she can use that amount, and we're going to take a look at a calculation here. She can use that amount to supplement what her retirement. While on one hand, the amount keeps on growing because you're not withdrawing the entire amount. So remember why I love a tax-free savings account because you do not pay any capital gains tax on it, you do not pay any interest on it, you do not pay any dividend withholding tax. That is where the power lies in a tax-free savings account. And remember, I always say your tax-free savings account is not a savings account, it's not like a transactional account, you put money in here for a little bit. And so, even with this person over 10 years, that is the ideal time. But let's take a look at some numbers so we put it into context properly. So I am on the Alan Gray website, and we are going to say she is investing 3,800 bucks every single month, and we are not increasing that amount. She's not doing a lump sum. This is a fresh TFSA, and we are saying she's going to be investing for 11 years. And because she's investing for more than five years, we can afford to put it into a slightly more aggressive fund. And as you can see here, as you can see, she would have contributed almost the 500,000 rand, but with the type of fund that she would have chosen, her money would have grown to over 880,000. And that amount is completely completely tax free. So it is a very powerful tool still to invest in a tax-free savings account, even if you are above the age of 50. So as you can see from here, she she has over 880,000 rent. And let's assume that she will withdraw. Let's just do a bit of math here 880,000. Uh let's say she withdraws 10% just to supplement some other things. So she already has a pension fund. Now she's saying, I want to start my tax-free savings account to supplement some of the retirement needs that I will have, and she will get 88,000 rand tax-free. So SARS does not touch a single cent of this amount. And I mean it can depend. Sometimes you can say, Oh well, I want to take $100,000 to do this and that, or $200,000, but that amount is completely tax-free. And if it remains invested, just because you turn $55 doesn't mean 50-65 rather, it doesn't mean that you can you are supposed to take those funds out and put it in a bank account. You leave it invested and it keeps on growing and you earn more compound interest on those funds. But I think also I want to talk about something very important. So you can open your tax-free savings account anywhere. And remember, I always say with an asset management company where fees are much lower. Okay. But the caveat to someone who is older than 50, perhaps, I would just add is instead of just putting it with any other asset management company, Alan Gray, for example, and this is not paid ads, by the way, by Alan Gray, but that's the only tax-free savings account I know right now that you can put dependence. Because remember, when you are approaching retirement, one of the most important things is estate planning. So you want a tax-free savings account where you can put your beneficiaries. So you know that you want your if anything should happen to you, should you die, that amount will be paid out to the people who you've written as your beneficiaries. Why is that important? Remember when you're doing estate planning, there is what we call executor fees. So if your tax-free savings account doesn't have beneficiaries, not the one that allows you to put beneficiaries, it means that that $880,000 or a million whenever you pass away will be paid directly into your estate. And that will attract executors' fees of 3.99%. But if you put it into a tax-free savings account that allows for you to put your beneficiaries, that amount will get paid directly to your beneficiaries without coming into your estate, therefore avoiding executor fees. Today it was a very short and sweet video, but it is to encourage every single person who is above the age of 50 to start their tax-free savings account. If you have a parent who is above 55 or about 50, start the tax-free savings account. If you yourself watching this channel and you are above 50, please go open your tax-free savings account. Do not do it with your bank. And any asset management company, try to find one that you can write down your beneficiaries. And that is my story for today. Thank you so much for watching, and I hope you found this video quite helpful. Please remember to subscribe to the channel, like, share, and do all of those wonderful things. Until next time, see you soon.