Save now or retire never

Start investing early with whatever amount you can afford; it will go a long way.

Stephen Katzenellenbogen CFP

Stephen Katzenellenbogen CFP

Private Wealth Manager

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Save now or retire never

Why are we so diligent at making our car and credit card payments, but the first thing we sacrifice is our investment savings?

I have, for quite a while, thought about the importance of this article’s message, but I had one of those moments a few days ago that motivated me to put pen-to-paper. An employee of a client emailed me saying that she, at 45 years old, has no savings and has realised that she needs to start doing ‘something’.

She asked for some ideas. Of course, my job is to give her some decent investment advice, but it wasn’t easy telling her that at this point in her life she would probably need to save more than 50% of her net income if she wanted to stand any chance of retiring (at age 65) with some parity regards to her current lifestyle.

If I ever had a second profession I would think about psychology, largely because I’m fascinated with the concept of why humans know something is good for them but act in contradiction to that knowledge. A good example of this is how we know that investing works best with a long-time horizon and isn’t affected by short-term movements in the market, but still buy and sell at the wrong time.

Following on from this thought, here’s a summary of returns over various periods (data to March 22 2019) to illustrate the benefit of staying the course:

Global Asset Class Returns (Base Currency)
Global Asset Class Returns


I always question why are we so diligent at making our car payments and our credit card payment etc, but the first thing we sacrifice – if it was ever even in the mix – is investment savings. We make our car repayments so we can have a fancy car that gets us around; we pay our credit cards so we can spend more – these are all relatively short-term things when considering retirement.

As soon as you start earning a salary, you should be working out how much you need to save to try and retire one day and only thereafter spend what’s left on a car. I’ve said before that I feel South Africans place too much focus on the now – the latest phone, latest BMW, latest exotic holiday destination – and it’s because of this that we have such a low personal savings rate.

A little while ago I wrote ‘To kill a bond or not’, an article that talks to whether or not you should pay down your bond before the repayment term. If paying down your bond as soon as possible is your objective, then your budget must accommodate this along with regular savings – you should not be buying a house that is so expensive that you are unable to make monthly debit order investments.

"Apparently we make around 3 000 decisions per day. Starting to invest early in your life is one decision that must be made, persevered and taught to your children."

One of those things that we all know, or have heard of, is the power of compound interest. It’s always worth a reminder of just how incredible this force is:

  • Example 1: Person A’s parents start a R1 000 debit order the day she is born which she carries on until she is age 65. At a 10% return, person A accumulates R78 222 379 after contributing just R780 000.
  • Example 2: Person B starts a R1 000 debit order at age 21, when they start working, and carries on contributing to age 65. At a 10% return, person B accumulates R9 556 496 after contributing R528 000.
  • Example 3: Person C starts a R1 000 debit order at age 45, and carries on contributing to age 65. At a 10% return, person C accumulates R765 697 after contributing R240 000.

Person A contributes around three times as much as person C, but accumulates a little more than 100 times as much savings. Wow! That’s the power of compound interest and starting your retirement savings as early as possible.

I would like to end of with two thoughts.

Mike Tyson once said: “Everybody has a plan until they get punched in the mouth.” Life does indeed ‘happen’, but if you have a plan that has some flexibility along with some non-negotiables, you will be able to meet your investment dreams.

Secondly, the most important thing about investing is to do it for as long as possible and take sufficient equity exposure; passive vs active, local vs global, boutique vs large manager are all irrelevant compared with your time in the market with exposure to risky assets.

Start investing early with whatever amount you can afford; it will go a really long way. 

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