Have no regrets: start saving while you are young

The concept of retirement may be evolving, but there is one thing that stays true: it is essential to build wealth while you are earning an income to give yourself financial security when you stop working. And the sooner you start, the better the outcome will be.

July is Savings Month in South Africa, a good time to start saving or check on how you are doing.

As a young person you may dismiss the idea of saving for retirement because it seems so far off. Also the world of work is changing: jobs are becoming more flexible and the divide between our working and non-working lives are blurring.

But remember that, even if you work past the age of 65, at some point in your life you will probably stop working, if not through choice, then through physical decline. Your standard of living from that day forward depends on the choices you make today.

Don’t be a retiree with regrets

Research shows that one of the biggest regrets of retired people is that they did not save more during their working years. A 2022 study by Abigail Hurwitz and Olivia Mitchell for the National Bureau of Economic Research in the US found that 52 percent of retirees regretted not having saved more, 33 percent regretted not having worked longer, and nine percent regretted having to depend on others financially.

In South Africa, according to the 2026 Sanlam Benchmark Survey of retirement funds released recently, only half of retirees maintain their pre-retirement standard of living within four to five years of retirement and only 40 percent of them believe their savings will last their lifetime.

Do you contribute to a retirement fund?

If you belong to a retirement fund through your employer, you are already saving for retirement in a systematic way. But are your contributions high enough?

In the Insights Report accompanying the recently published Sanlam Benchmark Survey 2026, Dirk Oosthuizen, head of research and principal benefit consultant at Simeka Consultants and Actuaries, notes that the recommended contribution rate to ensure a comfortable retirement is:

• 15 percent of your gross pay,
• Invested for between 35 and 40 years,
• Earning an after-inflation return of at least five percent.

This three-point plan, incorporating your contribution rate, length of time invested, and average return on your savings, is something relatively few people get right, Oosthuizen says.

Contributions versus take-home pay

One reason for this is that they choose a low contribution rate from the beginning, he says. Today’s flexible pay packages often allow for lower contribution rates, resulting in higher take-home pay.

“The three-point plan sounds easy enough, but are we snookering this plan already at inception by choosing a low contribution rate, thinking that we can make it up later?” Oosthuizen asks.

It’s also important to find out how much of your contribution, which may be partly funded by your employer, is going towards things other than savings. According to the Sanlam survey, retirement fund administration costs and group risk insurance can reduce the savings portion by about three percent. This means that, to ensure a 15 percent savings rate, your total contribution would need to be 18 percent.

Strike a good balance

Craig Torr, director and Certified Financial Planner at advisory firm Crue Invest, says it’s important for young people to find a balance between longer- and shorter-term financial goals.

“Many youngsters we chat to, before starting a family, have aspirations to travel or want to save for a deposit on their first home. So it is a bit of give and take: you want maximum tax efficiency using a pension fund, but at the same time you don't want to be accessing that money for lump-sum purchases. So we help them understand what it is that they're saving for, how much they're going to need by when, and try to achieve a balance between pension fund contributions and saving for shorter-term goals.

“If they're starting early enough, the rule of thumb is that 15 percent into your retirement fund should give you a pension of about 75 percent of your final salary, if you're prepared to do that for 40 years. So using that as a guideline, we can settle on a plan that meets the objectives on both fronts. At least if they are saving that 15 percent in their retirement fund, they can think of other means of saving for shorter-term goals,” Torr says.

“We also highlight the advantages of saving through an occupational retirement fund. These structures often benefit from lower administration and asset management costs compared with similar retail investments. In addition, contributions made via payroll provide immediate tax relief, rather than requiring members to wait for a refund from the South African Revenue Service (SARS).”

If you are not saving in a pension or provident fund connected with your work, you should consider investing in a retirement annuity, which is like having a personalised retirement fund. See “How do retirement annuities allow me to create my own retirement savings?”

Are your savings invested optimally?

Equities have historically provided the best long-term investment returns. Old Mutual Investment Group’s Long-Term Perspectives report for 2026 shows that over 30 years South African equities returned an average of 13.1 percent a year, as against 8.9 percent for cash investments. Inflation averaged 5.6 percent a year, meaning the local stock market beat inflation by 7.5 percent on average per year. While no one can predict what financial markets will do in the future, equities’ track record is unmatched.

Old Mutual investment analyst Siya Mbatha says equities are the essential ingredient in the wealth-creation recipe. “Wealth creation requires a long-term strategy and follows a simple formula: owning growing businesses, staying invested, and reinvesting the returns along the way,” he says.

Retirement funds are restricted by Regulation 28 of the Pension Funds Act to allocating 75 percent of their portfolios to equities, and investment experts recommend the full allocation when you begin your retirement savings journey.

Torr says he encourages young professionals to ensure their retirement savings are invested in a Regulation 28-compliant fund with a strong allocation to growth assets.

“Given the long-term nature of retirement investing, a higher exposure to equities and listed property is typically appropriate, as these asset classes have historically delivered the most robust returns over time.

“Ultimately, our focus is on helping young savers build sound financial habits – particularly the discipline of ‘paying their future selves first’,” Torr says.