CRPC Investment Strategies for Retirement 3

Question 1

A 70-year-old retiree has all her savings in certificates of deposit earning 1.5%. The GREATEST long-term risk she faces is:

Accepted Answer

Purchasing power (inflation) risk

Answer

With CDs yielding below inflation, her real purchasing power erodes each year, meaning her savings will buy progressively less over a potentially 20-30 year retirement.

Question 2

A couple wants guaranteed income to cover essential expenses in retirement. Which product BEST provides this guarantee without market risk?

Accepted Answer

Single premium immediate annuity (SPIA)

Answer

A SPIA converts a lump sum into a contractually guaranteed income stream for life, eliminating both investment and longevity risk for essential expense coverage.

Question 3

In the context of retirement planning, what does 'sequence of returns risk' primarily describe?

Accepted Answer

The risk that poor returns early in retirement permanently impair the portfolio

Answer

Sequence of returns risk is the danger that negative returns early in retirement, combined with ongoing withdrawals, deplete the portfolio before recovery can occur.

Question 4

Which alternative investment is MOST commonly recommended to improve diversification within a retirement portfolio?

Accepted Answer

Real Estate Investment Trusts (REITs)

Answer

REITs offer real estate exposure with daily liquidity, pass-through dividends, and historically low correlation to core equity holdings, making them the most practical diversifier.

Question 5

A retiree uses a 'flooring strategy.' The floor is BEST described as:

Accepted Answer

Guaranteed income streams that cover essential living expenses

Answer

In the flooring strategy, guaranteed income sources (Social Security, pensions, annuities) cover essential expenses, while the upside portfolio is invested for growth.

CRPC - Chartered Retirement Planning Counselor Practice Test

CRPC - Chartered Retirement Planning Counselor Practice Test

CRPC Investment Strategies for Retirement 3