Investment Strategies for Seniors Flashcards

What is the primary investment concern for most retirees that differs from accumulation-phase investors?

Answer: Sequence of returns risk and income sustainability

Retirees face sequence of returns risk — early portfolio losses combined with withdrawals can permanently impair the portfolio even if markets recover.

Which withdrawal strategy suggests taking out a fixed percentage of the portfolio each year, adjusted for inflation?

Answer: 4% rule (Bengen rule)

The 4% rule, developed by William Bengen, suggests withdrawing 4% of the portfolio in the first year of retirement and adjusting subsequent withdrawals for inflation.

What is a 'bucket strategy' in retirement investing?

Answer: Dividing assets into time-based segments with different risk profiles to fund near- and long-term needs

The bucket strategy segments assets into near-term (cash), mid-term (bonds), and long-term (equities) buckets matched to different time horizons of retirement spending.

Which type of annuity provides guaranteed income for the life of the annuitant, regardless of how long they live?

Answer: Single premium immediate annuity (SPIA)

A SPIA begins paying income immediately after purchase and guarantees payments for life, eliminating longevity risk for the annuitant.

What is 'longevity risk' in the context of retirement planning?

Answer: The risk of outliving your financial assets

Longevity risk is the risk that a retiree will outlive their savings and run out of money, making income sustainability a central retirement planning challenge.

A bond ladder is a fixed-income strategy in which bonds are purchased with:

Answer: Staggered maturities so that bonds mature at regular intervals

A bond ladder staggers maturities so that bonds mature periodically, providing regular cash flow and reducing reinvestment risk compared to holding a single maturity.