CSS Investment Strategies for Seniors 2 — Questions and Answers
Question 1: What is the main benefit of dividend-paying stocks in a senior's portfolio?
- Higher growth than growth stocks
- A regular income stream that can supplement other retirement income (Correct answer)
- Complete protection against market downturns
- Exemption from all taxes
Correct answer: A regular income stream that can supplement other retirement income
Dividend-paying stocks provide a recurring income stream that can supplement Social Security, pensions, or other retirement income without requiring asset sales.
Question 2: Which asset allocation strategy automatically adjusts the equity/bond mix to become more conservative as the investor ages?
- Core-satellite strategy
- Glide path / target-date fund approach (Correct answer)
- Tactical asset allocation
- Equal-weight portfolio
Correct answer: Glide path / target-date fund approach
A glide path gradually shifts the portfolio from higher-equity (growth) to higher-fixed-income (preservation) allocations as the investor approaches and enters retirement.
Question 3: What is 'sequence of returns risk' and when is it most dangerous?
- The risk of consistently low returns over a career; most dangerous during accumulation
- The risk that poor early returns, combined with ongoing withdrawals, permanently deplete the portfolio; most dangerous in early retirement (Correct answer)
- The risk of bonds underperforming stocks; most dangerous in a rising-rate environment
- The risk of market volatility late in life; most dangerous after age 80
Correct answer: The risk that poor early returns, combined with ongoing withdrawals, permanently deplete the portfolio; most dangerous in early retirement
Sequence of returns risk is most damaging in the early retirement years when large withdrawals combined with market declines lock in losses before a recovery can help.
Question 4: What is a Qualified Longevity Annuity Contract (QLAC)?
- A type of Roth IRA annuity for seniors over 70
- A deferred income annuity purchased within a retirement account that begins payments at an advanced age and reduces RMDs (Correct answer)
- A government-issued bond for retirees
- An annuity that pays only if the annuitant reaches age 85
Correct answer: A deferred income annuity purchased within a retirement account that begins payments at an advanced age and reduces RMDs
A QLAC is a deferred income annuity purchased within a qualified retirement account that begins income at a later age (up to 85), reducing the account balance subject to RMDs.
Question 5: What is the primary purpose of Treasury Inflation-Protected Securities (TIPS) in a senior's portfolio?
- To provide the highest possible yield
- To protect purchasing power against inflation since principal adjusts with CPI (Correct answer)
- To provide tax-free income in retirement
- To offer higher returns than stocks over the long term
Correct answer: To protect purchasing power against inflation since principal adjusts with CPI
TIPS principal is adjusted based on the Consumer Price Index (CPI), protecting the investor's purchasing power against inflation, which is a key retiree concern.
Question 6: Which strategy involves using a fixed annuity or bond ladder to cover essential expenses and keeping equities for discretionary spending?
- Core-satellite approach
- Floor-and-upside strategy (Correct answer)
- Tactical rebalancing
- Barbell portfolio
Correct answer: Floor-and-upside strategy
The floor-and-upside strategy uses guaranteed income sources to meet essential expenses (the floor) while maintaining equity exposure for growth and discretionary needs (the upside).
CSS Investment Strategies for Seniors 2
What is the main benefit of dividend-paying stocks in a senior's portfolio?