RMA Risk Assessment & Mitigation 2

Question 1

A 68-year-old retiree's portfolio loses 30% in year one of retirement. Which risk does this scenario BEST illustrate?

Accepted Answer

Sequence-of-returns risk

Answer

Sequence-of-returns risk refers to the danger that large early losses in retirement permanently impair a portfolio because withdrawals are taken from a depleted base.

Question 2

Which of the following strategies BEST mitigates sequence-of-returns risk for a newly retired client?

Accepted Answer

Maintaining a 2–3 year cash reserve to avoid selling equities during downturns

Answer

A cash buffer allows the retiree to fund living expenses without liquidating equities during market downturns, preserving the portfolio for recovery.

Question 3

A client's portfolio is heavily weighted in her former employer's stock. Which risk is MOST elevated?

Accepted Answer

Concentration risk

Answer

Concentration risk arises when a large portion of wealth is tied to a single security, increasing vulnerability to company-specific adverse events.

Question 4

Which of the following BEST describes the purpose of a Monte Carlo simulation in retirement planning?

Accepted Answer

To model the probability of portfolio survival across thousands of random market scenarios

Answer

Monte Carlo simulations run thousands of hypothetical return sequences to estimate the probability that a portfolio lasts through retirement.

Question 5

A retiree relies on a corporate pension as her primary income. Which risk should the adviser emphasize MOST?

Accepted Answer

Counterparty/credit risk from the pension sponsor

Answer

Corporate pension payments depend on the plan sponsor's financial health; if the sponsor fails, the PBGC backstop may not cover the full benefit.

RMA Practice Test

RMA Practice Test

RMA Risk Assessment & Mitigation 2