Advanced Diploma of Financial Planning (ADFP) Practice Test 2025 - Free Financial Planning Questions and Study Guide

Question: 1 / 400

Why is it beneficial to save for retirement early?

To have more time to spend the savings

To reduce the risk of savings loss

To increase the number of future compounding periods

Saving for retirement early is beneficial primarily because it maximizes the number of future compounding periods. Compounding occurs when the interest earned on an investment is reinvested, generating more earnings over time. The earlier one starts saving, the longer the money can stay invested and grow, as it benefits from compounding over many years.

This principle means that even small contributions made early can significantly increase the total amount saved by retirement age. For instance, if someone starts saving at age 25 compared to someone who starts at age 35, the first individual has an entire decade more for their investments to grow, leading to a much larger retirement fund.

Moreover, the earlier you begin saving, the less you may need to contribute each month to reach retirement goals, making it a fundamentally sound strategy for financial security in later years.

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To avoid employer contribution limits

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