Risk Assessment & Mitigation Flashcards
7 cards from real RMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment & Mitigation flashcards as text
A retiree holds a large variable annuity inside an IRA. The adviser notes the annuity charges a 1.5% mortality and expense (M&E) fee. Which risk does this fee MOST directly create?
Answer: Drag on returns that reduces long-term portfolio sustainability
Embedded fees like M&E charges reduce net investment returns each year, compounding over time and eroding portfolio value and income sustainability.
Which of the following BEST characterizes 'flooring' as a retirement income risk management strategy?
Answer: Covering essential expenses with guaranteed income sources before deploying risk assets
The flooring approach ensures essential living expenses are met by guaranteed income (Social Security, pensions, annuities) so risk assets can be invested for growth without threatening basic needs.
A retired client receives all income from a single-life pension with no survivor benefit. If the pensioner dies, the spouse receives nothing. Which risk does this expose the surviving spouse to MOST directly?
Answer: Survivor income risk
Survivor income risk occurs when a surviving spouse loses a significant income stream, potentially leaving them unable to cover living expenses.
A client asks about 'haircut risk' related to a state pension. This concern refers to which potential event?
Answer: Pension benefit reductions due to plan underfunding or state legislation
Haircut risk in the pension context refers to legislatively or administratively imposed benefit cuts when a public pension plan is severely underfunded.
Which of the following is the MOST effective hedge against unexpected healthcare cost inflation in retirement?
Answer: Holding a health savings account (HSA) with invested assets designated for medical expenses
An HSA allows tax-free accumulation and withdrawals for qualified medical expenses, directly offsetting healthcare cost inflation with dedicated, tax-advantaged funds.
A client is concerned that rising interest rates will reduce the value of her bond holdings. Which strategy MOST directly mitigates this interest rate risk?
Answer: Shortening bond duration or using a bond ladder matched to spending needs
Shorter duration bonds lose less value when rates rise, and a bond ladder aligns maturities with spending needs, reducing the need to sell bonds at depressed prices.
In the context of retirement risk management, what does 'ruin probability' measure?
Answer: The probability that a retiree will exhaust all investable assets before death
Ruin probability (or portfolio failure rate) is the statistical likelihood that a retirement portfolio will be depleted while the retiree is still alive.