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

Caselet: Mr. Gupta, aged 35, earns Rs 12,00,000 a year and has no retirement savings. His adviser explains that starting retirement saving early matters. Which statement BEST explains why starting early reduces the required monthly saving?

Starting early reduces the required monthly saving because compounding has more years to work, with returns earning further returns on the accumulated balance. Inflation still applies, returns are not guaranteed, and the replacement ratio does not depend on when saving starts.

  1. AEarly savings are exempt from inflation
  2. BCompounding gives longer time for returns to earn further returns on the accumulated amountCorrect
  3. CRegulators guarantee higher returns on long-term retirement savings
  4. DEarly savers need a smaller replacement ratio at retirement

Explanation

A longer accumulation period lets returns compound on earlier returns, so a smaller periodic contribution reaches the same target. Savings are not exempt from inflation, returns are not guaranteed by regulators, and the replacement ratio depends on lifestyle needs, not the start date.

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