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

In retirement planning, the 'replacement ratio' is best described as:

The replacement ratio is the percentage of pre-retirement income or expenses that a person needs after retirement to maintain the same standard of living. It helps advisers estimate the income target for the retirement years, unlike asset allocation shifts or savings ratios.

  1. AThe proportion of the retirement corpus that is moved from equity to debt at retirement
  2. BThe percentage of pre-retirement income (or expenses) that is needed to maintain the same lifestyle after retirementCorrect
  3. CThe rate at which the retirement corpus is replaced by annuity payouts each year
  4. DThe ratio of the monthly savings made to the corpus accumulated at retirement

Explanation

Replacement ratio expresses the post-retirement income or expense need as a percentage of pre-retirement income or expense. It is used to estimate the income level required to sustain the lifestyle. The other options describe asset allocation, annuity payout and savings ratios, which are different ideas.

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