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

Mr. Nair, a retired client, wants his plan to cover the possibility that he lives much longer than average, running out of money in very old age. Which action best addresses this longevity risk?

Converting part of the corpus into a life annuity best addresses longevity risk, because the annuity pays income for as long as the client lives, transferring the risk of outliving savings to the insurer.

  1. AConverting part of the corpus into a life annuityCorrect
  2. BMoving the whole corpus into a savings account
  3. CIncreasing withdrawals in early years
  4. DAssuming a shorter life expectancy in planning

Explanation

A life annuity pays income for as long as the annuitant lives, transferring longevity risk to the insurer. Higher early withdrawals and shorter planning horizons increase the chance of depletion, and a savings account offers no lifelong guarantee.

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