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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Planning Basics

A planner is advising a client who is 30 years old and has just started working. Which of the following is the most appropriate reason to begin retirement saving early?

Starting retirement savings early lets compounding act over a longer period, so a smaller regular contribution can build the same corpus. It does not guarantee returns, eliminate inflation, or make retirement income tax-free, which are common misconceptions among new savers.

  1. AEarly saving removes the need to consider inflation
  2. BEarly saving guarantees a higher rate of return than late saving
  3. CEarly saving allows compounding to work over a longer period, reducing the required periodic contributionCorrect
  4. DEarly saving makes retirement income fully tax-free

Explanation

A longer horizon lets returns compound on returns, so a smaller periodic investment can reach the same corpus. Saving early does not remove inflation, does not guarantee returns, and does not by itself make income tax-free.

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