NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Planning Basics
In retirement planning, which of the following best describes 'longevity risk' for a retiree?
Longevity risk is the risk that a retiree lives longer than planned and exhausts the retirement corpus. Falling portfolio values early in retirement are sequence risk, not longevity risk. Planners reduce longevity risk by assuming a long horizon and by using annuities or other lifetime income sources.
- AThe risk that the retiree's portfolio value falls sharply in the first years of retirement
- BThe risk that the retiree lives longer than expected and outlives the retirement corpusCorrect
- CThe risk that the rupee loses value against foreign currencies after retirement
- DThe risk that the retiree's employer fails to pay the gratuity due
Explanation
Longevity risk is the chance that life expectancy exceeds the planning horizon, so savings run out while the person is still alive. The first option describes sequence-of-returns risk, the third is currency risk, and the fourth is counterparty risk.
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