Start saving for retirement in your 20s

  1. If you think about it carefully, when you’re in your 20’s you still have minimal financial obligations, making it the best time to set money aside. You’re probably still free from expenses such as childrens’ university fees or a home loan.
  2. Retirement savings offer some tax benefits that will lower your tax expense. Many companies offer a pension benefit plan as part of employee benefits, where both you and your company contribute towards your retirement. These contributions can be subtracted from your gross income, thus lowering the total amount you’ll need to pay tax on. If your employer doesn’t provide some sort of pension funds benefit, a Retirement Annuity (RA) is a great way to invest for the future, as any interest, dividends and capital gains earned are tax-free. This is a long-term investment vehicle, provided by many financial institutions in the country. In order to benefit from tax benefits, you can contribute up to a maximum of 27.5% of your income or R350,000 per year (whichever is less).
  3. The longer you invest your money, the bigger your nest egg at retirement will be. If you start early, you can afford to put away less, as you’ll be earning ‘’interest on interest’’ for the coming years. This phenomenon is better known as compound interest — the main reason to start early with retirement planning.

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22seven

22seven

Thoughts, observations and insights. About money, life and 22seven. Visit 22seven.com