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

Which of the following is generally regarded as a feature of the 'replacement ratio' method of estimating retirement needs?

The replacement ratio method estimates the income needed in retirement as a percentage of pre-retirement income. It is a quick income-based approach, unlike the expense-based method, which lists and projects each expense item individually.

  1. AIt estimates post-retirement income need as a percentage of pre-retirement incomeCorrect
  2. BIt requires a detailed listing of every future expense item
  3. CIt fixes the corpus as a multiple of the client's age
  4. DIt assumes retirement expenses are always equal to current expenses

Explanation

The replacement ratio method expresses the income required after retirement as a percentage of final or pre-retirement income, so it is quick and based on income. The detailed listing of expenses is the expense-based method. The other options are not features of the method.

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