Advanced Diploma of Financial Planning (ADFP) Practice Test

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Advanced Diploma of Financial Planning Test. Study with interactive quizzes and comprehensive questions, each offering detailed explanations and insights. Gear up for success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

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
To avoid employer contribution limits

The correct answer is: 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.