Investing & Money
piece written on the 22nd January 2015 by  

In a series of blog posts I’m doing for Momentum, one topic that has come up is that of financial longevity and how to plan for retirement. Time Magazine published an article that stated that people who are going to live to 150 have already been born. The significance of this is that a lot of people calculate their retirement under the assumption that we’ll live to our 80’s or so, imagine doing the calculation to 150! That means instead of assuming that you’ll be alive and retired for say 20 years, you actually stand the chance of being alive and retired for 70 odd years – that is scary. But, it’s also potentially beneficial if you’re in good health and have made some good decisions.

Let me explain – in my opinion retirement boils down to one thing, compound interest. The earlier you start investing, the more years your money has to grow at an increasing rate because of compound interest. The best way to understand this is to look at a practical example:


Please excuse the use of dollars, I sourced the chart from Business Insider. The chart shows the sheer difference in asset / savings growth if you decide to invest at the age of 25 versus the age of 35. It’s a 10 year difference only, but just look at how much the blue growth accelerates for Emily thanks to compound interest. Dave only started investing later in life and look how short he falls. To attach some figures, both Emily and Dave invested $200/month from their starting points until the age of 65. In total Emily would have invested $96,000 and Dave $72,000. However, at the age of 65 Emily will have $402,492 and Dave will only have $203,118 (6% interest) – That means that Emily although only investing $24,000 more than dave because of the 10 years ahead start, she will have twice as much as Dave by the time she retires!

For me, one of the best things that I have taken note of as I’ve grown as an investor is that of encouraging parents to invest for their children, or at least to educate their children about it. Too many people get to their 30’s (or even 40’s / 50’s) and then only realise how important compound interest is. Don’t be that person who realises too late, be the person who invests from the start, even if it’s a tiny amount each month.  With compound interest, every single Rand counts.  Take the scenario above for example, imagine Emily’s parents put away $200/month from the day she was born, she would have had a further 25 years on that amount, her portfolio would be worth millions. For parents, a retirement annuity (RA) is one of the best vehicles because it’s easy to set up and the account cannot be touched until retirement – this prevents anyone from drawing from it along the way and thus forcing it to growth with appreciation.

Momentum have a fantastic financial wellness solution called MySavings that runs alongside their MyFinTrack and MySmarts solutions. That’s a powerful offering and the best part is that it’s all completely free to look at. You can create an account by clicking here. To entice you, they’re offering some incredible prizes:

Win one of three prizes of R250 000’s worth of Retirement Annuities and R30 000’s worth of savings. And all you have to do is go online and interact with the Momentum financial solutions we’ve been talking about.