Retirement funds vs property: Which is the better investment for your retirement?

South Africans have long debated whether investing in property or a retirement fund is the smarter path to financial freedom. For decades, owning property was seen as the ultimate sign of success. Your grandparents might have bought a home for R20 000 that’s now worth millions.

But times have changed. Property prices have surged, interest rates fluctuate and markets are far more unpredictable. In today’s economic reality, the question remains: which is a better investment for your retirement, property investments or retirement funds?

As a financial advisor, my instinct is to recommend diversification — spreading your wealth across savings, retirement funds, shares and property. But with the rising cost of living, few South Africans can afford to do it all. So, let’s compare two typical investors, one who consistently contributes to a retirement fund and another who builds a property portfolio and explore the strengths and weaknesses of each approach.

The case for retirement funds

Retirement funds, whether through an employer or a personal retirement annuity, are designed to provide a lifelong income once you stop working. Over time, steady contributions and compound growth can build substantial wealth.

Here are some key advantages:

• Power of compounding: Long-term tax-free growth and reinvested returns can significantly increase the value of your savings.
• Tax benefits: Retirement fund growth is not subject to capital gains tax, dividend tax or tax on interest earned. Contributions are also tax-deductible up to 27.5% with a maximum of R350 000 each year, which reduces your taxable income, effectively rewarding you for saving.
• Estate planning benefits: Retirement funds fall outside your estate, saving estate duty and executor’s fees, allowing nominated beneficiaries to receive the proceeds directly.
• Creditor protection: Funds are safeguarded against claims from creditors.
• Affordability and flexibility: You can contribute regularly and if you have a retirement annuity, you can pause or adjust contributions if needed.

At retirement, one of the options is to convert your savings into a life annuity that guarantees a steady income for the rest of your (and your spouse’s) life, an important safeguard against outliving your capital.

The case for property investments

Property can also serve as a powerful wealth-building tool, if managed strategically.

Here’s why many investors still see property as attractive:

• Tangible asset: Property can provide a steady rental income during retirement or be sold for a lump sum.
• Self-management: You have direct control over your investment.
• Resilient markets: Certain areas in South Africa have shown long-term resilience and consistent demand.

That said, property ownership comes with ongoing costs, maintenance, vacancies and taxes that can erode returns if not carefully managed.

Let’s look at how these two strategies stack up against each other:

Retirement funds:

• Tax efficiency: Contributions are tax-deductible and grow tax free.
• Estate: Retirement fund death benefits are distributed by the fund Trustees based on your nomination form. This is to protect your dependants, but it might not be distributed exactly as you planned and it can take up to a year to allocate.
• Lower entry cost: You can invest small amounts regularly, whereas property requires significant upfront capital, even if you use a bond to finance the property.
• Liquidity and flexibility: Contributions to a retirement annuity can be paused and you have a once-off withdrawal from your savings pot every tax year. You can change the underlying investment composition when you want and you can diversify your investment strategy by making use of different asset classes. You are also not limited to only one property.
• Predictable retirement income: Life annuities provide a regular income compared to the uncertainty of vacancies or tenant defaults on rental property.

Property investments have the following considerations:

• Wealth creation potential: Well-managed properties can appreciate and generate income indefinitely. The term of investment is important as it normally takes a long time to appreciate. For this reason, buying a property after retirement instead of renting could provide capital growth in the hands of your beneficiaries, not your balance sheet. Over time, it is, however, also possible for the area to deteriorate and the property value to reduce.
• Legacy planning: Physical assets can be passed on to heirs, but it is difficult to split a physical asset if you have multiple beneficiaries. Who lives in it? Who pays the maintenance and what happens if one heir wants to sell and the other wants to rent it out?
• Diversification: Owning several properties can spread risk and boost income stability, but the whole portfolio can be affected if one has issues. Management of a property portfolio can become a full-time job.
• Income: It is possible that you are unable to rent out the property or that you have unreliable tenants. To evict tenants who became squatters or to fix a property once damaged can cost you thousands, reducing your returns.
• Tax benefits: The interest on a bond, as well as expenses to run the property, can be offset against income, which is a benefit to your investment. The rental income is subject to tax and has to be declared in your annual return.
• Ownership: Are you buying the property in your own right or in a trust? Your primary property benefits from a capital gains tax exemption when you sell and should be kept out of a trust, but further properties could benefit from a trust structure to limit capital growth in your estate.
• Liquidity: It is not always possible to sell when you need access to cash and if an urgent sale is required it could come at a price.

Selling property triggers capital gains tax, a cost often overlooked when planning retirement liquidity.

So, which one wins?

There’s no one-size-fits-all answer. The choice depends on your goals, financial discipline and appetite for risk. Both can create meaningful long-term wealth, but only with patience, consistency and sound planning.

From years of working with clients, I’ve seen that successful retirees have one thing in common: they started early, stayed disciplined and sought professional advice.

The era of relying on a single strategy is long gone. Today, success lies in diversification, dedication and deliberate financial planning.

This retirement planning month, start the conversation with a qualified financial planner and explore how you can combine these strategies to work for you. Your future self will thank you.