RMA Risk Assessment & Mitigation 3

Question 1

A client retiring at 60 wants to know her 'safe withdrawal rate.' Which factor would MOST likely cause an adviser to recommend a LOWER initial withdrawal rate than the traditional 4%?

Accepted Answer

A longer retirement horizon because of early retirement age

Answer

A longer retirement horizon increases longevity risk and the number of years the portfolio must sustain withdrawals, requiring a more conservative initial rate.

Question 2

Which of the following is the PRIMARY purpose of purchasing a deferred income annuity (DIA) for longevity risk mitigation?

Accepted Answer

To guarantee income starting at an advanced age, covering the tail of longevity risk

Answer

A DIA (often called longevity insurance) begins payments at a future date—such as age 80 or 85—providing guaranteed income if the client lives to advanced ages.

Question 3

An adviser evaluates a client's exposure to taxes on required minimum distributions (RMDs). This is an example of managing which type of risk?

Accepted Answer

Tax risk

Answer

Tax risk in retirement includes the possibility that RMDs push taxable income into higher brackets, increasing the tax burden on retirement assets.

Question 4

A couple's retirement plan fails in Monte Carlo simulations at a 25% rate. Which action would MOST directly improve plan survivability?

Accepted Answer

Reducing planned annual spending

Answer

Reducing planned annual spending lowers the withdrawal rate and directly decreases the amount drawn from the portfolio each year, improving survival probability.

Question 5

Which risk is BEST addressed by laddering Treasury Inflation-Protected Securities (TIPS) in a retirement portfolio?

Accepted Answer

Inflation risk

Answer

TIPS provide principal and interest payments that adjust with the CPI, directly protecting purchasing power against inflation.

RMA Practice Test

RMA Practice Test

RMA Risk Assessment & Mitigation 3