The thing about retirement is that it’s not about what age you want to retire at anymore. It’s at what income.

Here’s a story of 3 gents. Lets call them John, Peter and George.

The three gents all went to the same primary and secondary school. They all, by good fortune got the grades to attend university doing various courses. John studied education. Peter was more into commerce while George opted for engineering.

The three had fairly similar financial positions at the outset. But their approach to pension planning were markedly different.

John had been drilled by his folks on the importance of saving for his retirement, right from when he got his first paycheck. His got his first job at 20 that paid 20k a month. He saved 10% in a pension saving plan every month.

Peter got his first job at the same place he did his internship. His first pay cheque was 15k as a store clerk. He figured he’d start saving once his pay check got a little healthier.

George got drafted by a big 5 audit firm upon graduation. His starting salary was by far the healthiest of the trio, coming to 60k per month after taxes. However, his company worked him so hard, he simply went along with the basic deduction to NSSF and that was it.

Fast forward 20 years later.

The lads are at a social function, and catch up over a few drinks.
The discussion strays over to retirement and they muse on life after their relatively successful careers. They start to make estimates on how much money they would need to sustain their current lifestyles and how they would sustain them.

George, now 40, left the large audit firm and has been running his moderately successful consulting business. His plan is to place a large chunk of money, about 250k into a fund and save 10,000 per month for the next 15 years. He figures with a 11% annualized return, he can make about 5.3M and if the market really goes his way, as much as 7.5M.

Peter shares that he had started actively saving for retirement when he turned 30. He placed a lump sum of 100k with an insurance company, and has been saving 3000 per month since then. He expects 11% annualized return. He’s on track to receive about 5.8M on turning 55. If the market outperforms the norm, it could be as much as 12.5M. He’s keeping his fingers crossed.

John smiles. He had been squirrelling away 2000 bob since he was 20 and had injected 50,000 (from the proceeds of a successful deal ) into his retirement fund when he was 25. All things constant, his payday is expected to be 11.1M on retirement, with an upside potential of about 32.5M.

George and Peter look at John dumbfounded.

“HOW???!!” They sputtered.

“It’s elementary chaps. I simply leveraged the time factor in the magic of compounding interest. My money had more time to grow, so by the time I’m approaching retirement, my contributions hardly do anything. The money is doing all the growth by itself!”

And this, dear friends, is why #Kulegalega costs you so much. What you lose is the most valuable commodity of all: the time to let your money grow.

NB: You can check the figures using this handy online calculator.