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

Caselet: Ms. Iyer, 58, has a retirement corpus of Rs 1 crore. She plans to withdraw Rs 5 lakh in year one, rising with inflation each year. Which withdrawal approach is she following, and what is the initial withdrawal rate?

She follows an inflation-adjusted withdrawal with an initial rate of 5%. Rs 5 lakh on a Rs 1 crore corpus is 5%, and increasing the rupee amount yearly with inflation preserves purchasing power, unlike a fixed-percentage approach, which varies with the balance.

  1. AInflation-adjusted withdrawal, 5%Correct
  2. BFixed-percentage withdrawal, 5%
  3. CInflation-adjusted withdrawal, 20%
  4. DFixed-percentage withdrawal, 20%

Explanation

Rs 5 lakh divided by Rs 1 crore is 5%. Because the amount is raised each year with inflation, it is an inflation-adjusted withdrawal. A fixed-percentage method would withdraw a percentage of the current balance each year, so the rupee amount would vary.

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