How much to save each day to retire with R10 Million

Teaching for moneyDear Investor Challenge,

I’d like to be rich one day. Properly rich, not just the “If you have a roof over your head and food in the fridge you’re richer than most of the world” rich, but actually very wealthy. A millionaire just won’t cut it, I’m aiming for a huge stash of cash. R10 million should do quite nicely.

I’m in Matric at the moment, and I have a part time job waiting tables on weekends. I make a fortune there, at least a couple of hundred a shift…

Next year I’m starting a teaching degree. I know it doesn’t pay well, but it really is what I want to do. The reasonable hours and long holidays are also going to be a bonus too.

So what are my chances of getting to R10 million with the totally shameful teachers salary I’m expecting to earn one day?

Teach to be

Thanks for writing Teach. I was a waiter myself while studying, at the only Baron in Pretoria. It was actually kind of fun and rather educational for all the wrong reasons. You’re right though, to a student it really is a decent amount of money. As long as you can manage to keep on top of your studying, try to keep that job. It’ll be quite useful as I’ll show you later.

I’ve also had a lot of family members in teaching. My mom was one for many years, my brother did a stint in a school library, and I have a cousin who teaches right now. I know that they really are underpaid if you consider how influential they are to so many young people.

Now you’ll be very happy to know that the chances of you having R10 million by the time you retire is practically guaranteed. You’ll be far less happy to know that due to inflation, it’ll only be the equivalent of around R650 000 in today’s terms. If that’s all you have to show for yourself after 47 years of work I’m afraid it’s not going to be such a good retirement, unless you can find a way to live on one 300th of that, just R2200 a month.

What I imagine you were actually asking, is if you could reach the equivalent of R10 million in today’s money by the time you’re 65. Now that is a great question, and one I’m really glad you asked, particularly considering you’re going into the teaching profession.

I often write about how you can retire very early if you save a large chunk of your income, and every now and then I get a comment from someone who says they have non-negotiable expenses and that normal people just can’t save enough.

Luckily for them, and for me, a future teacher is about as normal as you can get. Maybe even slightly lower than normal in terms of earnings, so if you can build up a very sizeable retirement fund, most other people should be able to too.

So how would a pretty average earner amass a R10 million fortune?

Well considering that an entry level teacher with a four year degree would earn around R19000 a month, there’s no way you could ever save enough on your own to get to R10 mil. Fortunately, you don’t have to, because you have two amazing forces on your side:

  • A lot of time; and
  • Compound interest

In combination, these two forces are so powerful that they will be working for you and give you such an easy route to R10 million, that you would have to do something really stupid not to get there.

Now people often say, the best way to tackle a large project is to break it down into bite sized chunks. It’s also what I do when I’m saving, and when I have a big project to complete. So for this case, let’s break it down into a daily amount to save.

How much do you think you need to save every day to build up a R10 million portfolio by the time you’re 65?

No you’re wrong. The daily savings amount is just R31. For less than the cost of a pack a day smoking habit, you can one day be very wealthy indeed. Now being a future teacher you’re going to tell me that just giving the right answer isn’t good enough, you want to see the workings. Well okay, click here to see how I got there.

As you can see, by investing just R31 a day, or R930 a month in the market, which has returned an average of 16.7% a year, and then only increasing that amount by inflation, you’ll be worth R10 million in today’s money. Even more amazingly, your total contribution to that will be just 1.7%, with compound interest doing all the rest.

Just like in the earlier case where the model managed to build a bigger retirement portfolio in 7 years than her doctor sister could in 40, compound interest has given you a huge gift. It’s the equivalent of you contributing just R170 000, with compound interest contributing the remaining R9.83 million.

This is an offer too good to miss, and is the reason that if I was you, I’d keep the part time job while studying, and make sure you put away your R31 a day without fail.

If you’re tempted to give yourself a break for a few years first take a look at the table below where I’ve calculated how much you would need to save a day starting at a number of different ages.

How much to save every day to reach R10 million by age 65

The most important chart you can show your children

I imagine many readers are a little surprised by how quickly the amount needed to be saved every day grows, but it’s simply the response of having less time to save and also less time to compound. In effect, you’re penalised twice for waiting to start. What you should also have picked up from the doctor and the model is that starting early is really far more important than saving a lot.

Luckily for you, you’re very young, and R31 a day isn’t a huge amount. I also happen to know that last year, the teachers pay scale got inflation +1% increases, and as an added bonus, as they get more experience they also climb up a level in the scale. This means that every year it will be easier and easier to save what you need to. For once it’s a target that gets easier to reach the closer you are to it!

Now I have a challenge for you and any other teachers who might have stumbled across this post. For some reason financial literacy isn’t part of the school curriculum. I wish it was, and even plan to volunteer my time teaching it for free one day when I no longer feel like working, but for now, please see if you can work it into some classes. Maths would be a good fit, particularly when you start talking about interest.

A super quick way to R10m

Getting paid just 1c on day one, doubling every day for 30 days would also make you R10 million

A simple exercise showing how massive investments can grow compared with how scarily credit card debt can also grow would do wonders. I still remember the exercise when I was a child. If you could convince a wealthy Sheik (or Gupta?) to pay you for a month, 1 cent on the first day, 2 cents on the second, 4 cents on the third and 8 cents on the fourth. Keeping that up for 30 days will also mean you will amass R10 million!

*Just for fun, I also calculated how much you would have to save per day for a newborn to reach R10 million at 65. Any guesses? Amazingly it’s just R5.30 a day. Now obviously a child has no money to save, but as a parent, you can take care of the first 18 years of your kids savings for less than the price of a coke a day.

Is this achievable?

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Disclaimer: This information is not advice as defined and contemplated in the Financial Advisory and Intermediary Services Act, 37 of 2002, as amended. Please only use this information as a guide, it is an indicative calculation only. Do not base any decisions on it without getting proper advice from someone with a license to do so!

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17 Responses to How much to save each day to retire with R10 Million

  1. Hi Patrick, compound interest is truly amazing!
    Just curious what you base your 16.7% p.a. return assumption on?

  2. It is indeed. The 16.7% is a number I found ages ago, I can’t remember where but it will be in one the links on a blog post somewhere. FOORD seems to indicate that it’s still accurate here for the last 15 years, take a look here:

  3. 15 years maybe a little too short of a timeframe (considering the 100+ year history) – the “since inception” number of 15.1% is closer to what I found…
    But anyways that’s nit picking and no one knows what it will be going forward. Most importantly the concept is the key take away 🙂

  4. The number went back to the mid 1900’s. Here’s one that says we’re both being conservative:

    While JSE returns can be volatile, and even though 2008 had a negative
    return of -23.2%, the average annual total return over this period was
    20.6%. Since 1961 the JSE All Share index has had an average capital
    growth rate of close to 15% per year and the average dividend yield has
    been close to 4.3% per year. If these dividends were reinvested, the 52
    year average total return for the JSE ALSI is close to 20%. (Source: Inet)

  5. Then there are those that say we are being overly optimistic. There was a mini tweet war (maybe it should be called a Twar? :)) going on over here where there seemed to be some data showing that returns over the very long term have averaged only 12%. But that excludes dividends, which is apparently 2%

    But you and me both are glass half full kind of guys, and I never saw any data, so I am comfortable with my assumption of 15.28% which sits nicely in between 🙂

  6. I quite like the way Simon puts it “It’s all moot anyway because nobody can tell the future”. Personally I’d be very happy with inflation +6% going forward. In fact if that was guaranteed I’d be handing in my notice today!

  7. Charlie says:

    So i have foolishly gone the route of starting an RA through a financial advisor, who in turn uses a platform to invest in… uhm… unit trusts. You can probably guess that it is performing really really poorly and that the little interest i get goes straight to fees. Now luckily its only been running for a year, and i am only 25 so i can correct it. My question to you is where would one save for retirement if you still want to make use of the tax deduction benefit but you want to see an actual return and some compounded interest? Is it best to make that RA paid up and just leave it and start something new or just pay the penalties for early exit and invest the money elsewhere? I think its a 13.5% penalty, but in the long run if i invest it somewhere where i will actually see a return i will negate that penalty within a year and then go on to compounding interest for many years to come. i just don’t know where to put it to do that – i mean while still claiming back my 32% of that money from SARS every year.

  8. Ramon Thomas says:

    Contact and they will help you move your RA. Their fees are the lowest in South Africa. Even though they are new, their fundamentals are good.

  9. Charlie says:

    I was considering making the RA paid up and rather investing more in my work pension fund. Its already on a healthy balance and performing quite well (+- 12%), with the added benefit that the company picks up the fees. However i have heard people say that it is good to have an RA/separate savings for retirement. I’m not sure why though? Also from the compounded interest point of view would it not be better to invest my money where i already have a large some invested and the sum of the interest will be that much greater?

  10. patrickza says:

    Hi Charlie, one of the forum members erwintwr put together a great calculator to work out the options between RA, TFSAs and discretionary investments. You might find it useful, have a look here:

    In the end I think it works out in favor of a full RA if you’re a high earner, and a full TFSA if you’re a low earner. Either way, you’re doing the right thing by getting into both.

  11. patrickza says:

    Aren’t Sygnia even cheaper than 10x Ramon? I always recommend the Sygnia Skeleton Balanced 70 Fund NOT the Sygnia Skeleton 70 Fund which sounds similar but is more expensive.

  12. Ramon Thomas says:

    Never heard of Sygnia and already signed-up with, so I will stick to them because my Momentum and Liberty paid-up RA’s have already been transferred.

  13. flourishing says:

    Hi Patrick. May you kindly assist with the daily data opening price, closing price and volume traded from 1985 to date for JSE All Shares and JSE Top 40 indices. Thank you.

  14. patrickza says:

    Hi Flourishing. I’m afraid I don’t have that data. You can find some of it on sites like google finance market watch etc, but I’ve never seen anything that goes back to 1985.

  15. Stephen H says:

    Hi, I know the discussion is late, but the content of the post is still very relevant. Overall the post is excellent and makes total sense. A few minor points though:
    1.) If you are interested in maximizing your potential after tax income, then you should probably take as much as possible in capital gains rather than property income. The inclusion rate for CGT is less than 100% and therefore this is a tax efficient place to earn income.
    2.) The RA issues are relevant, particularly in terms of constraining the investment mandate. However, unless you are only planning to live to 55, there is no issue in my mind of having money in the RA wrapper. You just need to use other money before you get to that age. In my view the constraints are worth the tax gain if you pay a moderate to high tax while you are earning a salary. Implicit in an early retirement strategy is that you are likely to be taking less income after retirement vs before (as you were saving a pile before retiring), and therefore having RA income taxed later as salary is less of an issue as your rate is likely to be lower. Further, assuming that you are not running your accounts down to zero, there may be money that stays safe and untaxed in your RA that you never have to pay tax on (while you are alive). The money in your discretionary investments will all have been taxed even if you don’t access it yourself.

    3.) If you do have a medical aid you can squeeze out a bit more income that given in the post, as there is still a deduction available. i.e. you only start paying tax at a slightly higher income.

    4.) For what it is worth, you can still earn 23k or so in interest without tax kicking in. So again, a bit more tax free income can come from there. Its not a long term strategy though as this limit will erode over time through inflation.

    But thanks for the post – I really like the logic.

  16. patrickza says:

    Comments are always welcome, especially when they come with new tips!

    You’re right, CGT is way better than regular income, tax wise. If my quick calculation is right, in theory you could earn R17844 (using the time tax rates when the blog was published, now R19115) a month and not pay taxes if it’s purely CGT. That’s nearly R3000 a month extra. Adding in the refund for medical would make it even higher.

    I’ve read that the interest exemption will never go up again, apparently TFSAs are in it’s place. I never considered it though because the returns are generally not much higher than inflation, and I like to get wealthier over time 🙂

  17. Stephen H says:

    Totally agree – no point in having too much money in interest earning investments as that is pretty stupid long term. But, as a non-salaried provisional tax payer with very variable cash flow, I need somewhere to stash cash for expenses and to pay tax when it is due, so inevitably end up keeping some money market cash and its nice not to pay the tax on that. Hope to be retired long before the interest exception becomes worthless with inflation.

    Thanks again for the great website/blog! Nice to have a rational SA resource.

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