Many experts would agree the best advice for young people is to start saving for retirement as soon as they start earning a paycheck. Is that sound advice? Absolutely. But young workers can have a hard time getting started saving for retirement. For many young adults, retirement feels lightyears away. A long investment horizon may be in their favor, but it can also create challenges around acknowledging the need to save. It can be tough to envision retirement when handling today’s challenges, like rising everyday expenses, lower entry-level earnings and for many young people, consumer debt like credit cards, auto payments and student loans.
It’s easy to see how only 57% of non-retirees aged 18–29 have any retirement savings, and only 24% say their retirement savings are on track.1
Financial professionals are in an ideal position to help young clients do more today to build a more financially secure someday. Bringing in young people as new clients — and encouraging young clients to prioritize retirement planning — can help them build a substantial nest egg with plenty of time to grow.
But working closely with a financial professional can also help young clients cultivate good habits and improve their financial literacy, both of which contribute to an individual’s overall financial well-being.
Young clients: age of opportunity?
Well-informed financial decisions and disciplined saving habits in early adulthood can have a tremendous impact on long-term financial health. Advice for young people is to start saving early, but advice isn’t the same as facilitating the steps toward meaningfully saving for retirement.
Want to inspire and empower young investors? Help them gain a clear understanding of the power of compounding over time. You can help them see the value of the time they have ahead of them, not merely for the wages and salary they’ll set aside each paycheck, but for the earnings their investments can generate — and for those earnings to compound over decades.
Consider a hypothetical example of a $1,000 windfall invested at age 25 and left to compound annually at an average rate of 4%. With a simple invest-it-and-forget-it approach, that hypothetical client would have more than $5,800 at age 70.2 A simple compounding illustration can help clients see their own youth as an asset to their retirement bottom line, and that may help them be ready to take advantage of long-term investments opportunities as they arise.
At the same time, early investments in relationship-building and cultivating client confidence can pay off over time for financial professionals. Mentoring and coaching young-adult clients through the challenges of creating and sticking to a budget, paying down debt and living on less than they earn can be truly rewarding. So are the personal connections forged through getting to know young clients and their financial goals — and then helping them achieve those goals.
Cultivate strong relationships with younger clients to build a foundation for a loyal customer base that can grow along with your practice.
Does saving for retirement get easier with time?
It can be a bumpy transition to adulthood when the expenses of housing, groceries, utilities, insurance and other must-haves are no longer their parents’ responsibilities. Keeping bills paid through the early-career years sometimes means taking on a second job and doing without some of the comforts parents might have provided at home.
A financial mentor can serve as a sounding board for younger clients, especially when it comes to clarifying their priorities, creating a budget and figuring out how to make ends meet. There’s no magical income level at which saving for retirement becomes easy; prioritizing retirement is a discipline that comes with practice.
And over time as young clients advance their careers and increase earnings, a financial professional can help them stay appropriately focused on making incremental increases to their retirement savings. You can also help clients understand how changes to their investment horizon may call for rebalancing and diversification strategies.
Make planning and budgeting relevant and real
To effectively engage younger clients, it's crucial to make retirement planning achievable. Frame the conversation around their current priorities, such as paying off student loans, buying a home, or starting a family. Show how retirement planning can fit into their lives without financial pain, and help them achieve both their short-term and long-term goals.
Because it’s such a long-term commitment, consider building milestones and shorter-term goals into financial plans. Small steps add up over time, and feedback can help illustrate progress. If you can, share success stories of clients who started early and are now reaping the rewards. Highlight the power of compounding, employer matches and living within their means to create a future they can look forward to.
Clients who previously depended on consistent feedback and short-term outcomes may benefit from learning how to create their own rewards when they achieve retirement savings goals — until the reward of retirement confidence becomes sufficient.
Engage on young clients’ terms
Young clients are digital natives, and tech tools and resources can make retirement planning more accessible and engaging for them. Offer guidance and access to free, interactive online resources and tools to help them get a clearer picture of their financial situation and potential impacts of choices before they make them.
It also pays to make yourself available through digital channels to accommodate their preferred communication methods. Whether that’s email, video calls and meetings, interactions on social media or a combination of all these channels, you’re likely to learn and grow as a financial professional while making yourself more accessible to your younger clients.
Consider hosting workshops seminars or webinars tailored to young clients, covering topics like budgeting, debt management and fundamentals of investing. By creating a space where they can ask questions, share concerns, and celebrate financial milestones together, you can position yourself as a professional who understands the unique needs and challenges younger clients face.
If you can inspire younger generations of clients to embrace retirement planning and prioritize their financial future, you can help them lay the groundwork for a substantial nest egg that flourishes over time. By engaging with them early on, making retirement planning relevant and leveraging technology to communicate, you can establish lifelong relationships and help clients build a legacy they’ll be proud of.
Moreover, collaborating with a financial coach not only nurtures healthy habits; it also enhances clients’ financial literacy, ultimately contributing to their lifelong financial well-being. The “someday” of financial planning and investing for retirement is important, but the impact of good habits and retirement confidence also contribute to an overall sense of well-being your clients can experience at every step of their journey toward retirement.
Learn more about the experiences and cultural trends that influence millennials’ financial attitudes and behaviors when you download our free whitepaper, Three Myths About Millennials
