NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Miscellaneous Aspects of Retirement Planning
Which risk is specifically highlighted when a retiree suffers large negative portfolio returns in the early years of retirement while also making withdrawals?
This is sequence of returns risk. Poor returns early in retirement combined with ongoing withdrawals shrink the corpus permanently, because fewer units remain to benefit from later recovery. It differs from longevity risk, which concerns living longer than the savings last.
- ALongevity risk
- BSequence of returns riskCorrect
- CReinvestment risk
- DLiquidity premium risk
Explanation
Sequence of returns risk arises when poor returns occur early while withdrawals are being made, depleting the corpus so it cannot recover fully. Longevity risk concerns outliving savings, and reinvestment risk concerns reinvesting proceeds at lower rates.
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