The earlier you start to save, the less money you need to put away. Time is one of the most powerful forces when it comes to growing your money – all thanks to the power of compounding.
If you start earlier, you need to save less: If you save R12 000 a year (R1 000 per month) from the age of 25 to the age of 35 and never saved another cent until the age of 60, you would have more money in retirement than someone who saved R12 000 a year from the age of 35 to 60. This is despite the fact that this person had made R300 000 of contributions over 25 years compared to your R120 000 in the first ten years.
This is possible because of the power of compounding and the fact that at a growth rate of 10% per annum, your money doubles every 7.2 years. Assuming 10% growth per annum, by the age of 35 your retirement fund would be worth around R210 374. If left to grow and double in value every 7.2 years, by the age of 60 that R210 374 would be worth R2 507 275.
In comparison, if you cashed in that money when changing jobs and started from scratch at the age of 35 by investing R12 000 per annum, you would only have accumulated R1 441 199 by the age of 60. That is because you lost the compounding effect of the first ten years.
The only way to catch up on the missing ten years is to save more. If you started saving for retirement at the age of 35 and wanted to have the same amount of money at the age of 60 as you would have had if you started at age 25 you would have to more than double your contributions.
So start saving early, and make time work for you!