NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Miscellaneous Aspects of Retirement Planning
A client aged 58 plans to retire at 60 and fears that her savings may run out because she lives longer than expected. Which retirement risk does this describe?
This is longevity risk, the danger that a retiree lives longer than assumed and exhausts the corpus. It differs from reinvestment risk, which relates to lower yields on reinvested maturity proceeds, and it is addressed by planning for a longer horizon or buying annuities.
- ALongevity riskCorrect
- BReinvestment risk
- CLiquidity risk
- DConcentration risk
Explanation
Longevity risk is the risk of outliving one's retirement corpus because life expectancy exceeds the planning horizon. Reinvestment risk concerns falling rates on maturing proceeds, which is not the worry described here.
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