“Financial advisors today are really life coaches who help clients explore their life goals and set pathways and milestones to help them achieve those goals,” Nirdev Desai, head of sales at PSG Wealth states in a recent Moneyweb article. According to Desai, the concept of saving is tough to sell to someone starting out in their career, but absolutely vital to anyone looking to achieve any degree of freedom.
South Africans are known to be poor savers, let alone starting to save in your early twenties. Desai says part of the problem for people in their 20s is that retirement is a distant event. They have other more pressing needs, such as paying for their education, marriage and a house.
A clever tack in this regard is to change your approach by helping them plan to think about saving as a way to financial freedom, rather than retirement.
In a recent newsletter to clients, Desai notes that the old rule of thumb stating that you should save 15% of your salary from the time you start working may not be sufficient. Instead, those who want to retire with a ‘replacement’ salary of 70% of their final salary will have to incrementally increase the amount saved with each salary increase. The solution is to start saving closer to 25% of your salary towards financial freedom, from the time you start working.
Desai emphasises that financial planners are a vital part of the discipline of saving: “they help you identify your goals and see how savings targets can be met”. Adopting this philosophy in your client/financial planner relationship may just help address their needs in a way more in line with their perceived objectives.
Click here to read the article, which also includes a table that illustrates the impact of salary increases in excess of inflation on achieving a given replacement ratio.