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

In retirement planning, the term 'replacement ratio' refers to which of the following?

Replacement ratio is the post-retirement annual spending need expressed as a percentage of pre-retirement annual income. It shows how much of earlier income must be replaced to maintain the standard of living, and is used to estimate the retirement corpus required.

  1. APost-retirement annual expenses expressed as a percentage of pre-retirement annual incomeCorrect
  2. BThe proportion of the retirement corpus that must be shifted from equity to debt
  3. CThe ratio of the retirement corpus to the amount of life insurance cover held
  4. DThe percentage of salary contributed each year to the retirement fund

Explanation

Replacement ratio measures the share of pre-retirement income that must be replaced to maintain the lifestyle in retirement. The other options describe asset allocation shifts, an insurance ratio and a savings rate, which are different ideas.

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