Here’s how to pay almost zero tax on retirement
· Citizen
Most retirement planning stops at whether your capital will last.
It rarely gets to the next one: once you know how much you can withdraw, how do you withdraw it so the tax system takes as little of it as possible?
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Kananelo Matela, Junior Investment Consultant at 10X Investments, says the answer doesn’t require anything exotic, just an understanding of three things the South African Revenue Service (Sars) already gives taxpayers: an income threshold it doesn’t tax, an account it can’t see into, and a credit it lets you offset directly against whatever bill remains.
Stay below the age-based tax threshold
Matela says the starting point for any retirement tax conversation is the age-based tax threshold.
For the 2027 tax year, retirees between the ages of 65 and 74 pay no income tax on annual earnings below R153 250, approximately R12 770 per month. For those aged 75 and older, that threshold rises to R171 300 annually, R14 275 per month.
“These thresholds are not deductions from income; they are achieved through the primary, secondary, and tertiary rebates that reduce the tax liability itself to zero,” he adds.
“For many retirees drawing a modest living annuity, this threshold alone may mean that no tax is payable without any further planning required. The strategies that follow become progressively more valuable as total income rises above this level.”
Use your Tax-Free Savings Account
Matela advises people to instead withdraw from their Tax-Free Savings Account (TFSA). A place where people park their savings that the tax agency does not tax, and this place becomes more valuable in retirement.
Unlike a living annuity drawdown, which is taxable, TFSA withdrawals incur no income tax, capital gains tax, or dividend tax. They do not appear in your taxable income at all.
“A retiree drawing R8 000 per month from a living annuity and R4 000 per month from a TFSA receives R12 000 per month, but only R8 000 of it counts for tax purposes. The remaining R4 000 is not taxed,” he says.
“Every rand drawn from a TFSA in retirement is a rand that does not increase your tax liability. From 1 March 2026, the annual contribution limit increased to R46 000, with the lifetime cap remaining at R500 000. For anyone still in accumulation, this is one of the most important contributions they can make before they stop working.”
Maximise medical tax credits
Matela says even where taxable income does creep above the threshold, there is another mechanism that most retirees underestimate: the medical scheme fees tax credit.
“It’s not a deduction from income, but rather a rand-for-rand reduction in the tax liability itself, applied directly against whatever bill remains after the age rebates have done their work.”
For the 2027 tax year, that credit is R376 per month for the primary member and R376 for the first dependant, with R254 for each additional dependant, meaning a retired couple on medical aid accumulates R9 024 in credits per year sitting directly against their tax bill.
If the calculated tax before credits is R12 000, applying those credits reduces the bill to R2 976. Depending on where your income sits relative to the threshold, medical credits may significantly reduce your tax liability, and in some cases, eliminate it.
Taxpayers aged 65 and older can also deduct all qualifying out-of-pocket medical expenses above the credit, a benefit that grows in significance as healthcare costs rise through retirement, says Matela.
Structure your drawdown deliberately
He adds that each of these tools has real value independently, but the full opportunity emerges when they are combined deliberately.
“The tax system draws meaningful distinctions between different sources of retirement income, and understanding those distinctions is what makes income architecture possible.
“Beyond the age threshold, the TFSA, and medical credit, even returns from a discretionary investment can be managed carefully, with only the growth portion subject to capital gains tax (CGT) and the annual R50 000 CGT exclusion for individuals and special trusts providing further relief.
“The more deliberately you draw across these sources, the less of your total income SARS can touch.”
Hypothetical retiree
Matela, to put his advice into practicality, he invented a hypothetical retiree, Margaret. This individual draws R14 500 per month across three sources: R8 000 from her living annuity, R3 500 from her TFSA, and R3 000 in fixed deposit interest.
Her living annuity drawdown is taxable income. Her TFSA withdrawal is not. Her interest income falls within the annual R34 500 exemption for over-65s, so it’s not taxable either.
That means her annual taxable income is R96 000, sitting comfortably below the R153 250 threshold, and the R9,024 in medical aid credits she and her husband accumulate each year eliminate any residual liability that might otherwise remain. Income tax payable: zero.
“The same monthly income, drawn differently, produces a completely different tax outcome, and that difference is not a rounding error.
“The threshold protects the base. The TFSA keeps additional income invisible. The medical credit eliminates whatever remains. None of these mechanisms is in tension with one another; they are designed to work in exactly this way, and when they do, the result is a retirement where more of what you have accumulated actually reaches you.”
Start planning now
Margaret’s outcome is available to far more South African retirees than realise it, but it does not happen by accident, and it cannot easily be retrofitted once the decisions have been made, says Matela.
“Getting it right requires coordination across your living annuity drawdown rate, your TFSA withdrawal timing, and your discretionary investments, ideally in the five years before retirement rather than the day after. It’s therefore worth looking into a retirement income structuring session with a CFP-qualified financial planner, because the tax savings it could unlock across a twenty-year retirement typically run into hundreds of thousands of rands.
“The retirees who benefit most from these provisions are not those with the largest portfolios. They are those who understood, early enough, that the source of retirement income matters just as much as the size of it.”