Build your practice by helping people in their 20s and 30s prepare now for a rosy financial future.
By Herb White, CFP, MBA
Retirement is far off for individuals in their 20s and 30s, but the reality is they too will retire someday. Many advisors are missing an opportunity to talk with this important group about their financial future and to let them know they have a valuable advantage—time. People in their 20s and 30s, with the discipline and patience to ride out the storm, may find the current economic downturn to be a real benefit to their long-term investment and retirement portfolios.
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People in their 20s and 30s, with the discipline and patience to ride out the storm, may find the current economic downturn to be a real benefit to their long-term investment and retirement portfolios.
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In this first installment of a two-part series, you will learn why you should reach out to this important demographic.
Today’s reality
While today’s retirees expect to receive income through savings plans, pensions and Social Security, people in their 20s and 30s may not understand they are facing a new retirement reality. Pensions and Social Security may not be around—or may be greatly diminished—by the time they retire.
Pensions are going away as fewer young people are staying with the same employer for extended periods of time, and more people go to work for small businesses or for themselves. Frequent job changes have resulted in smaller pensions or even no pensions at all.
When Social Security started in 1935, the life expectancy of the average American was 65 years. By 2010, the U.S. Census predicts that the average life expectancy in America will be 78.5 years; thus, the time people can draw Social Security benefits has dramatically increased. Life expectancy, coupled with 78 million Baby Boomers reaching retirement age, increases the probability that Social Security might not exist in 40 years—at least not as we know it today.
This leaves retirement savings plans as the most reliable long-term retirement tool. A financial advisor can fill an important role and help 20- and 30-year-olds look ahead to retirement, as well as other key life events that may require professional financial guidance. These events could be buying a home, saving for a child’s education, preparing for marriage or divorce, a financial crisis or funding their own college tuition.
Time and the compounding effect
Albert Einstein once said, “Compounding is mankind’s greatest invention, because it allows for the reliable, systematic accumulation of wealth.” To get 20- and 30-year-olds excited and serious about their future, crunch the numbers for them. With a few simple calculations, advisors can demonstrate what these young adults are capable of accomplishing financially before they retire in 30 or 40 years. With the magic of compounding interest on their side, they will then be ready to discuss their long-term goals.
If individuals start at age 25 to save $100 a month, they would accumulate more than $264,000 by the time they are 60 years old. If the same individuals waited until age 30 to start saving $100 a month, they would accumulate only $122,000. This example assumes an annual 7 percent rate of return.
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By taking the time to develop relationships with 20- and 30-somethings, advisors are gaining long-term clients by building value as a trusted financial partner.
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By taking the time to develop relationships with this segment of the population, advisors are gaining long-term clients by building value as a trusted financial partner. Next month, read about some specific financial strategies that will help your younger clients reach their goals.
Herb White, CFP, MBA, is president of Life Certain Wealth Strategies, www.lifecertain.com, in Greenwood Village, Colo.
March 2009