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

Mr. Raman Iyer, aged 58, plans to retire at 60. His financial adviser recommends that his retirement portfolio gradually shift from equity towards debt as retirement approaches. Which risk is this glide-path approach mainly intended to reduce?

The glide path mainly reduces sequence of returns risk. By moving from equity to debt as retirement nears, a client avoids a large market fall just when withdrawals begin, which could permanently damage the corpus and shorten how long it lasts.

  1. ASequence of returns risk near the start of retirementCorrect
  2. BLongevity risk after age 90
  3. CRisk of the client's employer becoming insolvent
  4. DRisk of changes in income tax slabs

Explanation

A glide path reduces equity exposure as retirement nears so that a sharp market fall just before or after retirement does not damage the corpus when withdrawals begin. This is sequence of returns risk. Longevity risk is dealt with mainly through annuities or a larger corpus, not by a glide path.

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