Need to know
- Sino Booi of Momentum Savings shares smart ways to use windfalls to grow your retirement savings faster.
- Reinvesting lump sums can boost long-term growth through compound interest and unlock tax benefits that may increase retirement savings by up to 77%.
- Combining monthly contributions with annual top-ups can significantly accelerate wealth growth over time.
In a world that often prioritises quick wins and instant results, some things like retirement savings remain a journey of patience and consistency.
The earlier you start, the more time your retirement investments have to grow. However, your tax refund or annual bonus are the specific "quick wins" that can change the game, acting as high-octane fuel to speed up your savings growth.
Here is how you can strategically use your windfalls to grow your retirement savings faster.
At the heart of this growth is compound interest - the effect of earning interest on your interest. Imagine time and money like yeast in a ball of dough, quietly working in the background to help your savings grow bigger. It’s the “interest on interest” that allows your money to grow much faster over time, beyond just what you put in.
Make a lump sum contribution to fast-track your savings
Monthly contributions form the foundation of your retirement planning but adding a once-off lump sum from windfalls such as a 13th cheque, tax refund, or performance bonus can act as a powerful multiplier.
To understand the scale of the growth, consider that a single R50 000 investment in a retirement annuity, growing at 12% per year, could balloon to over R1 million or 30 times more than your original investment in 30 years.
Since most of us don't have an extra R50 000 lying around, we rely on steady, monthly contributions to build wealth over time.
However, the true impact happens when you combine those regular savings with one strategic yearly contribution.
Here’s a breakdown:
Let’s look at a practical example of how much faster your money grows when you add a lump sum once a year. Imagine you are 25 years from retirement with the following profile:
- Monthly income: R30 000
- Monthly contribution: R4 500 into a retirement annuity
- Annual increases: 5% for both salary and contributions
- Growth rate: 12% per year (before fees)
Compare the two potential outcomes:
This means if you top up your retirement savings with a 13th cheque every year, your retirement money will be more than 50% fatter. That’s incredible!
Unlock the double benefit: tax savings and accelerated growth
South Africa’s retirement annuities offer tax benefits, making them a smart way to reduce your taxable income while saving for the future.
Using the previous example, here is how the numbers play out:
- By reinvesting your bonus, it triggers a larger tax rebate (nearly R8 000 in this case).
- If you reinvest your yearly tax rebate instead of spending it, your retirement money will be an incredible 77% more.
Make top-ups a consistent part of your retirement savings strategy
The key is consistency. Even modest top-ups added to your monthly contributions, can significantly increase your retirement savings. Some do it before the end of the tax year by the end of February every year.
Ultimately, saving for retirement is a marathon, not a sprint. By starting early, staying consistent, and making the most of extra contributions, you’ll set yourself up for a future where your money truly works for you.
This blog post was adapted from an article seen on FA News.
Get advice
You can start your retirement journey with Momentum Savings from as little as R500 a month. However, everyone’s path to success is unique. To determine exactly how much you need to invest to reach your retirement goals, speak to a financial adviser today to create a retirement savings plan tailored to your needs.
About the author
Sino Booi
Product Development Lead at Momentum Savings
Sino Booi is the Product Development Lead at Momentum Savings. He has worked in the insurance industry for 10 years, mostly in developing long-term savings and funeral products. He has a BSc Mathematical Statistics and Actuarial Science degree from Wits University. Outside of work, he’s a married man, an exciting milestone for him, and he loves participating in sports, especially golf, soccer and padel. He also loves travelling.
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