Savings hero


Posted by: | 2013-08-29 15:34

I am a 42-year-old who is only now starting to plan for retirement. Yes I know it's late, that is why I need advice.

I have a pension plan through my company, but it's not very big as I have only recently started working here. In the past I have always used my pension payouts. I am looking for an additional investment option that I can run concurrently.

expert answer

Posted by: Jeanette Marais | 2013-09-04 15:04

Fear not, all is not lost. While starting as early as possible is preferable, it is still possible to make provision for your retirement starting at 42. 

But you’ll have to save harder, work for longer, and invest wisely so that what savings you do have, achieve the best possible returns.

Ultimately your retirement income is a factor of how early you started saving, how much you’ve saved, the investment returns you’ve enjoyed and the amount lost through not preserving your pension or provident fund savings when you changed jobs.

When you reach your forties, you can only influence two factors: how much you contribute and the investment choices you make. It’s too late to think about starting early, and the retirement money you cashed in between jobs is long gone.      

The rule of thumb for retiring independently is that you will need a capital sum of 15-20 times your final annual pre-tax income. This will give you an income equal to about 70% of your income at a retirement age of 65 (if you buy a conventional pension-providing product). 

Given your personal circumstances, to achieve this level of income (70% of final salary) you will need to save about 30% of your salary, or achieve an investment return of 15% above inflation.

Both seem daunting, but there are ways to lessen the burden. If you can achieve an investment return of 7% above inflation, you’ll have to save a bit less - around 25% of your salary. 

And if you work until 70 instead of 65 and earn a regular return of 7% above inflation, you’ll only have to save about 12% of your salary. 

Alternatively, you could plan to retire on 50% of your current income instead of 70%, which is possible if you’re debt-free and in good health. 

You also need to make sure your investment choices are not too conservative. Equities have outperformed all other asset classes over time and it is essential to include them in your portfolio for real growth. 

However, they also come with volatility, though this tends to smooth out over the long term.

You mention that you have a pension plan through your company and that you are looking for an additional investment option.

When deciding which investment product best suits your needs, you need to consider when you’ll need to access your investment, how it will be taxed and what happens to it in the event of your death.

You also need to consider fees. A retirement annuity fund (RA), a discretionary unit trust investment or an endowment policy are all possible options.

The biggest advantage of RAs is their tax-efficiency. Many RAs are offered with low product fees and offer choice and flexibility.

You can stop and start contributions without penalties, you can choose which underlying unit trusts to invest in (as long as your selection complies with the asset allocation limits for retirement funds prescribed by regulation), and switch between funds at no extra cost. 

However, you cannot usually access your money until you turn 55. At retirement, a minimum of two-thirds of the capital in your RA must be invested in a pension-providing vehicle.

An endowment policy, meanwhile, also has certain tax advantages and while you are not bound by retirement fund regulations, withdrawals and additional contributions are restricted.

It can be a good medium- to long-term investment for higher income earners with a high marginal tax rate. But your money will be tied up for a minimum of five years.

Another option for you is to invest directly in unit trusts of your choice. Unit trusts are a cost effective way to invest in a wide range of assets, such as shares, bonds and property.

While you are allowed to access your money at any time, it’s best to use unit trusts for medium- to long-term investment goals. If you go this route, you are not bound by retirement fund regulations.

When it comes to investment products, sometimes there may be multiple products that could meet your needs.

If you are not comfortable making these decisions on your own, or do not have the time to do so, it may be useful to engage the services of an independent financial adviser.


Fin24 cannot be held liable for any decisions made based on the advice given by independent experts, and disclaims all responsibility or liability for any damages whatsoever resulting from the use of the site

user comments

Posted by: Morrungulo | 2016-04-02 05:55
At the rate our government is destroying the value of the rand it may be prudent to hedge a portion of your investment cash offshore in GBP. - 10 years ago a pound cost R10.70 now R20.90! Not a bad 100% growth. Save offshore and maybe in 10-15 years you may just be swopping each GBP1000 monthly tranche for R40,000. Not a quick fix but time in the market may reduce your risk?
Reply to Morrungulo
Posted by: lucky HL | 2014-04-24 15:33
I am training as a junior engineer at esokm very interested in enterpreneurship,the world of investment, accumulation of wealth but is seems like i fail to understand the simple rules of each, SOLO JHB please tell me how the growth of property in SA by 6.3% AND inflation of 6.3% makes it the worst idea to invest in property.
Reply to lucky HL
Posted by: Anonymous | 2013-09-05 15:54
No mention of ETFs and shares in any of these 'tips'. It seems Unit Trusts and 'product's are the only thing these financial gurus can come up with. Pity, their loss :)
Reply to Anonymous
Posted by: Nick | 2013-09-05 17:28
Hi Anonymous You are quite right, shares and ETF's are a great form of investment. If you know what you are doing and watch the markets every day. They are however a very aggressive form of investing and considering the lady in question only has just over 20 years to retirement it would be foolish to take that risk as she does not seem have a fall back in the case of either one performing badly. If you are making money however, well done!
Posted by: Markham Adams | 2013-09-05 14:38
The Real (take note of the punt) focus should be aggressive/real Returns for your Money. Investing your money with gurantees of 50% below inflation rate is precisely why 80% retire poor, both financially & physically. Invest first in your Health, all three (3) yes three facets of it ( Soul, Mind & Body) then retirement will be a absoluut blast.
Reply to Markham Adams
Posted by: JP van der Watt | 2013-09-05 12:27
Whoever decided that the 40 year plan was a good idea must’ve been nuts! How can life be fun to work for 40 hours a week, for 40 years and retire on 40% of your income? If you start working at the age of 25 and you are lucky to retire at 65 you will only earn 480 pay checks. Deduct all the tax you need to pay; you end up with 280 pay checks. Only 280 pay checks! That is way 96% of people is either dead, or dead broke at the age of 65, 3% can afford to retire and only 1% can retire being wealthy. If you are sick and tired of this thing called a JOB and want to make a change in your life please do contact me. I’m working on a 2-5 year plan, where I can retire after 5 years of hard work. I can do this through a fun and innovative business model called social entrepreneurship. So if you are looking at escaping the rat race feel free to contact me at To your success!
Reply to JP van der Watt
Posted by: Anonymous | 2013-09-05 11:29
Yes. What about property?
Reply to Anonymous
Posted by: Anonymous | 2013-09-05 13:36
So true! to make matters worse no the inflation rate is on average 6%. However there is a different inflation rate that no one talks about that is called household inflation. To achieve the authors figure you would have to earn at least a 13% return on your investment. The truth is you are wasting your time with these type of investments. You are making other people rich with your money, and you will have nothing at retirement. If you want to learn look up Dr Hannes Dreyer or Work your wealth. Ask people like this author how many people has he hellped to be well off at his retirement age. The only one will be him who is getting rich on the commisions of your money, not you
Posted by: SoloJHB | 2013-09-05 13:29
SA Property is currently growing at 6.3% and inflation is 6.3%. Property is the worst idea. Aggressive saving and aggressive investing is this persons only saviour
Posted by: Nicky | 2013-09-05 11:22
No mention of property ...
Reply to Nicky

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