CRPC Investment Strategies for Retirement 5

Question 1

A retiree wants to minimize the impact of a severe market downturn in year two of retirement. Which tactical approach BEST addresses this concern?

Accepted Answer

Maintain a cash reserve of 1-2 years of expenses to avoid selling equities at depressed prices

Answer

Holding a cash buffer allows the retiree to fund near-term withdrawals without liquidating equities at low prices, giving the equity portion time to recover.

Question 2

Which of the following BEST describes 'Monte Carlo simulation' as used in retirement planning?

Accepted Answer

A statistical technique that runs thousands of random return scenarios to estimate the probability a plan will succeed

Answer

Monte Carlo simulation generates thousands of randomized return sequences to calculate the probability that a retirement portfolio and withdrawal strategy will not run out of money.

Question 3

A client aged 72 has a traditional IRA valued at $500,000. He does not need the RMD for living expenses. The MOST tax-efficient strategy for these funds is:

Accepted Answer

Donate the RMD directly to charity as a qualified charitable distribution (QCD)

Answer

A QCD counts toward the RMD requirement and is excluded from taxable income (up to $105,000/year), making it the most tax-efficient disposition of unwanted RMDs for charitable clients.

Question 4

In a low-interest-rate environment, a retiree seeking income should be MOST cautious about:

Accepted Answer

Reaching for yield by purchasing lower-quality bonds to boost income

Answer

Reaching for yield by moving into high-yield or lower-rated bonds exposes the portfolio to credit risk that can result in losses far exceeding the additional income earned.

Question 5

A 60-year-old client wants to retire at 62 and delay Social Security until 70. Which investment strategy BEST bridges the income gap between ages 62 and 70?

Accepted Answer

Use a bond ladder maturing annually from ages 62 through 70 to fund living expenses

Answer

A bond ladder with annual maturities from 62 to 70 provides predictable cash flows to replace the income the client foregoes by delaying Social Security, with minimal market risk.

CRPC - Chartered Retirement Planning Counselor Practice Test

CRPC - Chartered Retirement Planning Counselor Practice Test

CRPC Investment Strategies for Retirement 5