This should make sense even at age 25

Gugu Sidaki | 24 August 2022

Gugu Sidaki is an independent financial planner and co-founder of the financial planning practice Wealth Creed. She holds the Certified Financial Planner accreditation and is an author and financial literacy enthusiast.

The average South African cannot afford to fund their lifestyle at retirement – less than 10% of the population in retirement are financially secure.  The rest are either dependant on the State (17%), or on family (45%) while 32% are forced to continue working, the Sanlam Benchmark survey shows.

The scary statistics don’t make sense when you are young and starting out your life. When you are 25, everyone over the age 35 seems ancient to you and you can’t imagine ever being old.

So many amazing and life-changing things will happen in your life between the age 25 and 65. A career - and possibly even many different careers, love, heartbreak, children (if that’s what you want for your life), travel, self-discovery … the list is endless.

When you are young, retirement is certainly not one of those exciting chapters you are dreaming about.

But wait … you want to stay free

But retirement is important. I have realised this as I’ve grown older. I have also realised that if I want the very fancy retirement I plan to enjoy, I have to up my savings game.

The main reasons why most of us don’t have enough to support ourselves in retirement are:

  • A lack of financial knowledge;
  • A low savings rate;
  • Little or low preservation of retirement funds when changing jobs.

The impact these three reasons could have on our financial future later in life is something that we should be aware of as early as possible in our lives so that growing older does not become a dreaded thing. Confronting the possibility of retirement and planning for it, as best we can, will help us to avoid the mistakes of those who’ve come before us.

Nobody wants to be at the mercy of others for a place to live or the other things that sustain us. And you certainly don’t want to be forced to continue working when your body no longer wants to. Not wanting to work when it is no longer pleasant to do so, should make sense regardless of your age.

Insuring against a lack of options

Perhaps that is how you should think about saving for retirement – as taking out insurance against the possibility of dependency and lack of options at any age.

The more you save, the easier it will be for you to buy your freedom from any negative situation you may find yourself in – with enough savings you can free yourself from an ungrateful boss, take a break if you need one and stop working when age makes you feel like you no longer want to do so.

How to be free in three easy steps

So how do you set up this insurance? It’s a three-step plan that anyone can put in place.

Step 1

Start by not spending every cent you make. A portion of the money you earn must be reserved for future use - that’s what savings are. Work out how much money is comfortable for you to set aside each month and stick to that. Even if it’s a few rands at a time.  The trick is to start and to keep going. This is the hard part.

Step 2

Once you’ve achieved the difficulty of consistently setting aside a portion of your money, use that money to make more money without you having to save more or working any harder for it. This is called investing. This is a tried and tested way of creating wealth over time without you overexerting yourself.

The trick with investing, though, is that you must start investing as early as possible in life and then stay invested. Set some money aside, invest it wisely and leave it alone!

If long-term thinking and saving for an impossible-to-imagine retirement is hard for you, think of a goal you want to achieve in five or 10 years’ time and at least start investing towards that.

Step 3

Keep at it. Keep setting aside some money. The more money you set aside, the more motivated you’ll be to keep going.

With this plan, you’re going to blink and suddenly you will be much closer to the ancient people at 65 than you ever imagined.

The only difference is that you will have achieved something very few of them have been able to do – buying yourself freedom through consistent and diligent savings and investments.