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

Caselet: Mrs. Nair, aged 58, has a corpus of Rs 1.2 crore and wants to retire at 60. She holds 80% in equity and has no emergency fund. Her expenses are Rs 50,000 per month. Which action best addresses the sequence of returns risk near her retirement?

A bucket approach, holding two to three years of expenses in low-risk assets while the rest stays invested for growth, best handles sequence of returns risk. It avoids forced equity sales in an early downturn, unlike going fully into equity or into a savings account.

  1. AMove to a bucket approach, keeping 2-3 years of expenses in low-risk assetsCorrect
  2. BShift the entire corpus to equity to beat inflation
  3. CPostpone building any emergency reserve until after retirement
  4. DWithdraw the corpus fully and hold it in a savings account

Explanation

Sequence of returns risk arises when poor returns occur early in withdrawals. Holding several years of expenses in safe assets avoids selling equity during a downturn. Full equity increases the risk, and full savings account exposes her to inflation risk.

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