Unlock the power of compound interest: keep your retirement snowball rolling

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Preserving means you avoid paying a big chunk of your savings to tax when you withdraw your retirement savings. Plus, the money continues to grow, uninterrupted.

SPONSORED - Most South Africans don’t have enough money to retire comfortably because they take their retirement savings as cash when changing jobs. When saving for retirement, two golden rules for unlocking the power of compound interest, which is when you earn interest on interest, are:

· Start investing for retirement as soon as you start working and try to contribute at least 15% of pre-tax earnings towards retirement, and

· Preserve your retirement savings when changing jobs.

There are different ways to preserve. You can preserve in-fund with your old employer’s retirement fund, or you can move your savings tax-free to a preservation fund or retirement annuity, or your new employer’s retirement fund.

Preserving means you avoid paying a big chunk of your savings to tax when you withdraw your retirement savings. Plus, the money continues to grow, uninterrupted.

A preservation fund not only allows you to house your savings and investment returns tax-free until you retire but allows you to make one full or partial withdrawal before age 55, the age from which you can retire from a preservation fund. A retirement annuity doesn’t give you access to the money before 55.

Nashalin Portrag, Head of FundsAtWork, Momentum Corporate says, “Saving for retirement is like a snowball rolling down a hill, growing bigger as it picks up more snow. The layers of snow build on one another, creating an even bigger snowball, which picks up even more snow. The snow is the compound interest. If you take your savings as cash when changing jobs, your savings snowball explodes, and you have to start saving all over again, only now the time to retirement is much shorter.”

Portrag concludes, “Choices you make today will have a huge impact on your future lifestyle. Talk to your retirement fund’s benefit counsellors or a financial adviser to be fully-informed when making these critical decisions.”

Momentum Corporate just launched an exciting new website to demystify difficult employee benefits related terms. Visit employeebenefitsexplained.co.za for easy explanations of other employee benefits terms and concepts

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