Clients are more closely aligned with recommendations around retirement—but not uniformly so. Virtually all financial professionals in the survey (93%) recommend their clients open a 401(k) during their early careers, when they have plenty of time to take advantage of the tax-deferred growth offered by these plans. Most clients (65%) follow this advice. But another 30% wait to open a 401(k) until they reach their early 30s and begin to raise a family. In the process, they miss out on valuable opportunities for long- term compound growth, as well as the potential for employer matching contributions.
Different attitudes from generation to generation may help explain why some younger individuals opt to wait to open a retirement account. Relatively large numbers of clients in Gen Z (56%) and the Millennial generation (42%) indicate they either are not very worried or not at all worried about their ability to save for retirement. According to Bertrand, talking to clients about their hierarchy of needs can help them overcome their reticence to get started. For example, health savings accounts can be a viable supplement to their current strategy, since these accounts can eventually be used for retirement, but offer the flexibility to fill an immediate need by paying medical expenses in the interim.
It’s also important to emphasize the math behind starting early by demonstrating clearly why dollars clients save while in their 20s are more valuable over time than dollars they save in their 30s, Bertrand says. “Taking the guesswork out of it and showing clients what compounding looks like for future years with illustrations or studies helps overcome the emotional attachment to relatively expensive habits that people have during their early careers,” he says.
This is especially important when clients wind up forgoing employer matching contributions. “The power of small contributions, especially when they’re being matched up to 3%, adds up over time,” says Bertrand. He recommends reminding clients that an employer match is part of their compensation package and failing to take advantage of that match is akin to giving up free money.