Every retiree desires a financially independent life post-retirement. Building a retirement corpus is a long-term financial objective. An early start helps in creating a sizeable retirement corpus. However, retirement planning may still be secondary for a few. You should educate your clients about the adverse impact of such delays.
Let us look at some common effects of delaying retirement.
Your clients cannot take aggressive calls
When investors are young, they normally have limited financial obligations. Somebody in his 20s has fewer financial obligations compared to someone in his 40s.
A young investor may take aggressive calls by investing in equity, which otherwise gets restricted with the growing age. The investment portfolios of the young can have a sizeable exposure to equity, which can be reduced with increase in age. Remember, equity investments are likely to generate capital appreciation and inflation-adjusted returns over the long-run.
Affects the impact of compounding on retirement corpus
It is advisable to opt for growth option when investing in retirement linked mutual funds. The benefits of compounding are visible in the long term, which can enhance the retirement corpus. Compounding increases the value due to the generation of interest on the principal as well as the interest accrued. By postponing investments for retirement, your investors are depriving themselves of the benefit of compounding, thus reducing retirement corpus.
Higher insurance cost
With the rapid increase in cost of medical expenses, it is necessary to have health insurance. The insurance coverage provides financial backing during times of medical emergencies. Similarly, life insurance can take financial care of your client’s family in the case of an untimely demise. Getting your clients insured is crucial while planning for their retirement. The insurance premiums progressively rise with age. Your clients can enjoy savings in the form of reduced premiums through an early start.
Diminishes scope of correction
There is always the possibility of a scheme not performing as anticipated. Alternatively, the required retirement corpus and client’s goal may undergo some change. If there is sufficient time in hand, it is easier to revisit existing investment portfolio and take corrective measures. A periodic review with adequate time in hand aids in taking remedial steps in response to underperformance and changing client needs.
To conclude, encourage your clients to start saving for retirement. If they do not have a large investible surplus, they can begin with a smaller amount. The key here is to start early rather than waiting for an increase in the investible surplus.
