For many young people, the idea of saving for retirement seems like something that needs to be done only when one is much older, more settled, or has paid off debts. But then we hear the scary statistic highlighting that only 6% of South Africans can afford to retire financially independent, says Ester Ochse, product head at FNB Money Management.
“That is a truly worrying statistic and something that needs to be changed for the better over time. Financial independence is defined as not needing financial support from family, friends or the government.
“The big question is when should a person start saving and investing for retirement? And the answer is simple, the sooner the better, even contributing a small amount to retirement savings now can be very beneficial in the long run.”
Saving
Ochse used the example of someone targeting a lump sum of R6,000,000 at retirement, which should give them a sustainable income of R25,000 per month (increasing with inflation) until the age of 90.
The assumptions for her calculations include:
“So, when one looks at the illustration below one can see that to get to the same lump sum at retirement being R6,000,000 until the age of 40 most of the amount is made up of interest and returns in the investment. At about 45, the returns and contributions start equalling and after that it is the contributions that exceed the returns,” Ochse said.
“The moral here is that the earlier a person starts saving for retirement, the more they can benefit on the effects of compound interest. This means that the interest earns interest, over a long period of time.”
Additional considerations
When it comes to retirement, Ochse said there are a few things that one needs to consider.
Read: 10 scams targeting customers in South Africa right now: FNB
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