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

Caselet: Mr. Shah, 62, retired with a Rs 2 crore corpus and withdraws 4% in the first year, raising the withdrawal by inflation each year. The portfolio falls 20% in year one right after the first withdrawal. He wants to keep his real withdrawal unchanged. Which adviser action best addresses the sequence risk?

The best action is to maintain a bucket of two to three years of expenses in low-volatility assets. It funds withdrawals without selling equity at depressed prices, letting the growth portfolio recover and reducing sequence of returns risk.

  1. AHold a bucket of 2-3 years of expenses in low-volatility assets so equity need not be sold at lowsCorrect
  2. BShift the whole corpus into equity to recover quickly
  3. CStop all withdrawals permanently
  4. DRaise withdrawals to compensate for the fall

Explanation

A cash or short-debt bucket funds near-term spending so equity is not sold after a fall, giving it time to recover. All-equity increases risk, stopping withdrawals is impractical, and higher withdrawals deplete the corpus faster.

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