Save 15% of your salary for 40 years
You cannot save like a pauper in your youth and expect to live like a prince in your retirement.
Ideally, you should save 15% of your total salary — the income you want to replace in retirement – through-out your working life of approximately 40 years. If this is not practical, you should still save as much as you can for as long as you can.
15% may sound like a lot, but remember the contribution is not taxed, and the effect on your take-home pay is thus reduced. If you pay tax at the highest marginal rate of 40%, your take-home pay only falls by 60 cents for every rand you contribute.
The table below shows the sensitivity of replacement ratios to changes in savings period (years) and contribution rates.
| Replacement ratio (retirement income as % of final salary) | Contribution as % of salary | ||
|---|---|---|---|
| Savings period years | 10% | 15% | 20% |
| 20 | 20% | 30% | 40% |
| 40 | 50% | 80% | 110% |
For more information see the 10X Calculator.
The power of compounding
The longer you invest the more your investment return compounds – the increase in your investment value is larger than the increase in the investment term (the length of time you hold the investment).We illustrate this in the table below.
| Future value of R100 earning a 5% pa. real return | |||
|---|---|---|---|
| Savings period (years) | Increase in Years | Investment value | Increase in value |
| 30 | R 430 | ||
| 40 | 33% | R 700 | 63% |
An investment of R100 earning a 5% pa real return will grow to R430 after 30 years and to R700 after 40 years. Over the last ten years, the investment value increases by 63% even though the investment term only increases by 33%. This illustrates the power of compounding and why it is critical to save for as long as you can.