When I was working on the blog post about money mistakes people make in their twenties, a number of people that I had asked for their stories revealed that their biggest mistake had been delaying retirement planning.
While I am far from being a financial guru when it comes to my own affairs, by some combination of good fortune and a glimmer of foresight, that’s one thing I managed to get right.
At my second job, when I was in my early twenties, our MD brought in a financial planner to help us buy the financial products that we needed. The planner helped me set up my medical aid and then suggested that I take out a retirement annuity. I was young and carefree, but also filled with the heady self-importance of being responsible for myself, so a retirement annuity sounded like a good idea.
While I was still only earning a starter salary, I was also living at home. I paid my mom a nominal rent, I’d bought a second-hand car, and other than that, everything was disposable. Even after tax and my medical aid, I still had about two thirds of my salary to blow on just about anything I wanted. So the R250 starter contribution to a retirement annuity was no hardship.
Over the years, I’ve increased my contribution annually, and that little investment has always been a part of my baseline expenses. It was only when I began to research the Money Mistakes article that I realised what a gift I’d given myself.
I understand the beauty of compound interest – that because you earn interest on your interest, your investments grow at a greater rate each month, each year that you’re invested – but the mathematics of this always astonishes me when I see it laid out with actual figures.
In the case of an RA, there’s an often-quoted calculation for why it’s a good idea to start young. It shows that if you start investing when you’re 20, and you’re trying to save R5 000 000 towards retirement at 65, you’d need to invest R500 a month. But if you start when you’re 30, you’d need R1 350 a month. And if you start when you’re 40, you’d need R3 800 a month!
As for people who only start when they’re 50, they’d need a whopping R12 000 a month to reach their target, which is a pretty hefty amount to come up with every month if you are not in the habit and have other expenses.
Of course, when I’m in my forties, I will probably be looking back on my thirties and recalling the mistakes I made then. I know that chief among them will be the fact that I didn’t increase my effortless RA contribution to something a little more substantial, over and above my annual inflation-related increases. It’s just that with two kids, school fees and a bond, it’s suddenly not so easy to find the extra spare cash each month.
I am very aware of the fact that not finding it now means I’ll have to find it later, and that for every month I don’t increase my contribution, I’m losing out on the magic of compounding the interest on the larger amount.
But at least I did start early, which has given me a nice little nest egg to compound quietly away for my future, while I’m so busy focusing on all the commitments of the present. Thank you, twenty-year-old me for not making that mistake. (We’ll just ignore the debt and the overspending and the lack of budget and the minimal savings, shall we?)
Georgina Guedes is a writer, editor and content producer with a passion for reading, eating and travel. She has learnt a lot in her journey as a personal finance writer, and even manages to put some of it into practice! She lives in Johannesburg with her husband, two children, two dogs a cat and a white picket fence. You can follow @georginaguedes on Twitter.
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