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5 Tips to prepare for retirement in your 20s
Although retirement seems far away, the earlier you start saving for it, the more comfortable you’ll be able to live once you stop working.
Start preparing for retirement in your 20s
Adulting is hard. There’s no use in downplaying the fact. The past five years have been a rollercoaster ride. You’ve had to adapt to life after school – from dealing with the dynamics of university, to finding your feet financially and sliding out from under your parents’ or guardian’s wings. You’ve steadily been growing your career and getting to spend your hard-earned money is a real thrill. But whenever you find yourself in grown-up conversation, one topic always seems to come up – how to start preparing for retirement.
Yes, it may be decades away, but if you start preparing for it early on in your professional life, you’ll be saving yourself a lot of financial stress when retirement day comes knocking.
Here are 5 practical tips to help you prepare for retirement:
- Open a tax-free investment account.
Trust us on this one. Getting into a good savings routine from the get-go is the best way to ensure your financial freedom later in life. A tax-free investment account is a relatively cheap way to start saving. South African tax regulations allow for saving up to R36,000 per year, free of tax. This amounts to saving R3,000 per month over a 12-month period. Not all of us can afford that. The good news, depending on who you bank with and the type of account, is that you can start investing from as little as R250.
- Get clued up on compound interest.
You may have heard this term mentioned before. In simple terms, compound interest means that you earn interest on the initial capital amount, and thereafter, you earn interest on that interest. The secret is to be disciplined. No matter how big the temptation may be, don’t touch your savings. Over time, compound interest can generate a sizeable nest egg.
- Increase your earnings potential.
Remember – how much you’re able to earn is directly related to your skill set. Your employer remunerates you based on your unique skills. The more unique, the more valuable. This, in turn, means that you can charge a higher rate for your services. While not everyone has the means to further their education formally, there are many free online certifications from reputable organisations like Google and Udemy that can up your earnings potential.
- Ditch the debt.
Try to get rid of high-interest debt like credit cards or repay them in full before interest is charged. As you pay off debts, funnel the extra money towards your remaining debt as additional or double payments. That way, you’ll be able to pay off your debt sooner and save bucketloads in interest.
- Get financially educated.
It’s essential for you to know what’s happening with your personal finances. Speak to financially savvy people like accountants and relationship bankers. The internet, and blogs like this one, are also a treasure trove of free financial advice. Use it!
Want to know more?
- Contact your wealth banker or stockbroker.
- To find out more about how we can help you with retirement planning, click here.
- If you're interested in what we can offer you, we would love to hear from you. You can contact us on 0800 111 263, or complete an online contact form.
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