Compound interest

Unleash the power of compound interest: keep snowballing for your retirement


SPONSORED – Most South Africans don’t have enough money to retire comfortably because they take their retirement savings in cash when they change jobs. When saving for retirement, two golden rules for unleashing the power of compound interest – that is, when you earn interest on interest – are:

· Start investing for retirement as soon as you start working and try to contribute at least 15% of your pre-tax income in retirement, and

· Preserve your retirement savings in the event of a job change.

There are different ways to store. You can keep funds with your former employer’s retirement fund, or you can transfer your savings tax-free to a preservation fund or retirement annuity, or your new employer’s retirement fund.

Preserving means that you avoid paying a large portion of your savings to tax when you withdraw your retirement savings. In addition, the money continues to grow, without interruption.

A preservation fund not only allows you to keep your savings and investment income tax-free until you retire, but also allows you to make a total or partial withdrawal before the age of 55, age from which you can withdraw from a preservation fund. A retirement pension does not give you access to money before age 55.

Nashalin Portrag, Head of FundsAtWork, Momentum Corporate, said: “Saving for retirement is like a snowball rolling down a hill, getting bigger as it picks up more snow. The layers of snow pile up on top of each other, creating an even bigger snowball, which picks up even more snow. Snow is compound interest. If you take your savings in cash when you change jobs, your savings snowballs and you have to start saving again, only now the time for retirement is much shorter.

Portrag concludes, “The choices you make today will have a huge impact on your future lifestyle. Talk to your pension fund’s benefit advisors or financial advisor to be fully informed when making these critical decisions.

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