How much of your salary should you put towards pension vs savings?

There’s a lot of debate on how much money you need to save to live a financially comfortable retirement.

Before starting, it’s worth noting those in debt should consider whether it’d be better to get rid of that before starting a pension.

If you opt for a pension, there’s a very rough rule of thumb for what to contribute for a comfortable retirement. A quick search reveals wildly different ideas about what your retirement savings should look like when you finally stop working.

Making plans for the future depends on a lot of unknown variables. You don’t know how long you’ll be able to work, how well the investment markets will perform, which life events might happen to you or how long you will live.

Back to the rule of thumb: take the age you start your pension and halve it. E.g. someone starting aged 34 should contribute 17% of their salary for the rest of their working life.

Don’t delay. The sooner you contribute, the longer your money has to grow. The compounding effect, where the cash your investment earns can, itself, attract additional earnings, makes a massive difference.

Increase payments. It’s important to put away a constant proportion of your earnings. As your pay increases, make sure your contributions increase proportionately, or you’ll fall behind.

Use the ‘pay rise trick’. Most people will be unable to contribute enough at the beginning. So start with whatever you can, but each time you get a pay rise, put a quarter of it each month into your pension.

Then there is the more fundamental question: how much money should you save? Savings is the cornerstone of virtually every other decision about money we make. It affects everything from buying a home to saving for emergencies to retirement.

People love the surprise in seeing their balance after a period of time and realising they accumulated more than they thought. Let’s indulge in a lesson from A Pack of Cards.

Yep, a Pack of Cards. You have one? Don’t have one, get one. Stack away KES 1,000 in it and forget it’s there. Then come back to it one month after and bam! You’ll be surprised you found money.

More surprising is that money is still a topic that remains bizarrely taboo. We’d prefer to chat about xyz than what’s in our bank accounts.

The shame around money allows a lot of us to get into damaging behaviours and patterns, whether it’s taking out unsafe loans, spending on things we don’t need, or just refusing to look at our bank balance.

So how much should you save? Like physical fitness, financial fitness is mostly about good habits. You establish a habit and get it into a routine.

You save 10% this month; over a period of 3 months, you get into a routine and scale. When the routine is established you can set out to save between 20 and 35%.

Principally, how much one should save will vary considerably based on circumstances, but importantly you need to get in the routine of setting money aside, tracking your spending, saving for retirement and knowing how to shape and plan for goals.