Save for the future

Myra Hofmann of Malmesbury

writes Our house has a lovely garden and veranda where our daughter can play. We love it! Retirement is still far off, but I want to make sure that my husband and I will be able to afford to stay here when that time comes. We don’t want to be forced to sell to maintain our standard of living. Any advice?

Paul Hutchinson of Investec Asset Management replies

It’s never too soon to start saving for retirement! The more time an investment has to grow, the better; this way, you can take advantage of compound interest – that’s when your interest starts earning interest. Bonus!

If you start saving at 20, putting 15% of your salary away for 40 years, you can save an amount equal to 20 times your annual income in the year you retire.

If your investment grows at a rate that’s 7% higher than the inflation rate (at the current rate of 5.1% that is growth of 12.1%), you should be able to retire comfortably by the time you turn 60 years old.

With that money in the bank, you can draw up to 5% of your savings every year, and live to 90 without running out.

If you start 10 years later, you have to save 30% of your total salary for 30 years to secure the same nest egg by the time you turn 60. That’s twice as much money per month (which means less spendable income) to compensate for the shorter period in which your money can grow. You see why I say it’s best to start saving as soon as possible?

The good news is that it’s never too late to start. A good financial planner can help you determine how much money you should save to be able to enjoy the view from your veranda. We all deserve a comfortable retirement!

CONTACT investecassetmanagement.com