All financial advisors would agree that financial planning is always more effective with tweaks and the addition of layers of wealth protection over a period of time as the needs and wants of clients would change with the stages of life, and planning for retirement should ideally be done years or even decades before the age of retirement. But how does one explain to younger clients or prospects it is imperative for them to start planning as young as possible?

Perhaps, instead of showing millennial clients what they stand to gain if they start planning for retirement early, financial advisors can illustrate to clients what they stand to lose if they don’t plan ahead. Kendrick Ng, a two-year MDRT member from Singapore, shares how he does it.

Explaining time vs. money horizon

Knowing your client’s time horizon is essential for outlining an investing strategy that meets their goals. The time horizon will dictate a very important distinction: the return of investment versus the return on investment.

With a shorter time horizon, the focus is tilted toward the return of it; you want to make sure your clients can get the initial investment back. For example, if you know your client needs the money next year, they don’t have a lot of time to grow it and there isn’t a lot of room to risk losing it.

In the case of retirement planning, it is important to help clients understand that starting early will allow them the luxury of time to compound and maximize results until their age of retirement. At the same time, explaining the Time vs. Money Horizon will let them understand the downside of late retirement planning. Ng explains, “Having limited time to generate [the same] ROI, which is very risky and [generally] not advisable.”

Share real-life examples

After explaining the Time vs. Money Horizon to his clients, Ng doubles down on the perils of starting retirement planning late by sharing a personal experience with another client of his.

One of his clients only started to plan for retirement at the age of 55, which meant that the latter “had to save up quite a substantial amount [monthly] to hit his [financial] objectives.” Ng shared that planning for retirement this late is “very stressful, compared to if he started planning in his early 30s or 40s.” As a result, Ng’s client had to delay his retirement, probably beyond the age of 65. “With proper planning, this [situation] could have been avoided,” Ng shared.

Provide a solution

Naturally, after sharing the downsides of late retirement planning, Ng comes in with a feasible solution for his clients. He does this by first mapping out the financial risks they might be exposed to, along with any financial concerns they might have. He also helps to identify possible big-ticket spendings and commitments his client might have such as buying a house, paying for a wedding or having a child in the near future.

With a detailed overview of his client’s financial goals and responsibilities drawn out, Ng will then encourage his client to plan ahead by committing to a policy that will help provide for them during their retirement years. “Detailed planning is required for younger clients [and] they need to cater a budget for future retirement needs,” he shared. He also always reminds his clients, “When you start early, it will be less stressful for you when you’re in your late 50s.”

On top of helping his millennial clients plan for their retirement, Ng also educates them on the impact of inflation and tells them the minimum Full Retirement Sum they should work towards set by the Central Provident Fund Board in Singapore (a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare, education and housing needs in Singapore). “Using the tools provided by CPF, the minimum retirement sum is a good ballpark figure for clients to plan towards. But they would also realize that the sum is not sufficient for a comfortable retirement,” Ng shared.

With a wealth of information at their fingertips about how late retirement planning can affect their age of retirement and how Ng can help them adequately budget for their retirement, Ng’s clients can then make sound decisions on how to better ready themselves for their golden years using a multitude of solutions and strategies tailored to their time horizons and circumstances.

Contact: MDRTEditorial@teamlewis.com

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Helping millennial clients in Singapore understand the perils of not planning for retirement early