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

Under the inflation-adjusted approach to retirement planning, which of the following is the main reason an adviser uses a real rate of return when computing the corpus required at retirement?

An adviser uses the real rate of return because it lets expenses expressed in today's money be compared with investment returns net of inflation, simplifying the corpus calculation. It does not remove the need for a retirement horizon, guarantee sustainability, or address taxation.

  1. AIt removes the need to estimate the retirement period
  2. BIt allows expenses stated in today's money to be matched with returns net of inflationCorrect
  3. CIt guarantees that the corpus will never be exhausted
  4. DIt ignores the effect of taxes on withdrawals

Explanation

The real rate of return is the return adjusted for inflation, so today's-value expenses can be discounted directly without inflating each year's expense. It does not remove the need to estimate the retirement period, does not guarantee the corpus lasts, and does not account for taxes.

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