NISM Series X-A · Unit 10 of 12 · about 10% of the paper
Retirement planning: NISM Series X-A notes and practice questions
Estimating the corpus, choosing products and planning withdrawals. Retirement is a multi-decade project with inflation as the main enemy.
What to know in Unit 10
- Corpus estimation.
- EPF, PPF, NPS and annuities.
- Withdrawal strategies.
Key terms, examples and exam traps
Retirement corpus
The retirement corpus is the accumulated sum needed to fund expenses after retirement, estimated using expenses, inflation, years in retirement and returns.
Example. A client works out the lump sum she needs at 60.
Exam trap. This statement is false: The corpus is the amount spent each month.
Replacement ratio
The replacement ratio is the percentage of pre-retirement income needed after retirement to maintain the lifestyle, often taken as 60% to 80%.
Example. A client needs 70% of her final income in retirement.
Exam trap. This statement is false: The replacement ratio is more than 100% for everyone.
Longevity risk
Longevity risk is the risk of outliving one's savings because life expectancy is increasing.
Example. A retiree is still alive when savings run out.
Exam trap. This statement is false: Longevity risk is the risk of dying early.
Employees' Provident Fund
The EPF is a mandatory retirement savings scheme for salaried employees with contributions from employee and employer, and interest declared annually.
Example. A salaried person's monthly contribution is matched by her employer.
Exam trap. This statement is false: EPF is voluntary for all employees.
National Pension System
NPS is a voluntary defined-contribution scheme in which contributions are invested in equity, corporate bonds and government securities, with a part of the corpus used for an annuity.
Example. A person builds her pension through a regulated portable account.
Exam trap. This statement is false: NPS guarantees a fixed pension.
NPS Tier I and Tier II
Tier I is the retirement account with restricted withdrawals, while Tier II is a voluntary savings account with free withdrawals.
Example. A subscriber keeps a flexible withdrawal account in addition to the main account.
Exam trap. This statement is false: Tier I allows free withdrawal at any time.
Annuity options
Annuity options include life annuity, annuity with return of purchase price and joint-life annuity, each differing in payout and continuation.
Example. A couple selects an annuity that continues for the spouse after the first death.
Exam trap. This statement is false: All annuities pay the same.
Systematic withdrawal plan
A systematic withdrawal plan redeems a fixed amount from a fund at regular intervals to create retirement income.
Example. A retiree draws a monthly sum from a debt fund.
Exam trap. This statement is false: An SWP buys more units every month.
Safe withdrawal rate
A safe withdrawal rate is the percentage of the corpus that can be withdrawn each year with a low chance of running out, commonly assumed at around 4% in global studies.
Example. A client withdraws a modest percentage each year to make a corpus last.
Exam trap. This statement is false: A safe withdrawal rate is the rate of inflation.
Inflation in retirement
Inflation raises expenses over a long retirement, so some growth assets are needed even after retirement.
Example. A retiree's monthly cost of ₹50,000 rises over twenty years.
Exam trap. This statement is false: Retirees should avoid all growth assets.
Bucket strategy
A bucket strategy divides retirement money into near-term cash, medium-term income and long-term growth buckets.
Example. A retiree holds two years of expenses in cash and the rest invested for growth.
Exam trap. This statement is false: The bucket strategy puts everything in one asset.
Medical costs in retirement
Healthcare costs usually rise faster than general inflation, so retirement planning should include adequate health insurance.
Example. A retiree faces large medical expenses at 75.
Exam trap. This statement is false: Medical costs fall after retirement.
Pension from employer
A defined-benefit pension promises a fixed pension based on salary and service, while defined-contribution plans depend on contributions and returns.
Example. A government employee receives a pension formula-based on last salary.
Exam trap. This statement is false: In a defined-contribution plan the pension is guaranteed.
Reverse mortgage
A reverse mortgage lets senior citizens convert home equity into regular income while staying in the home, with the loan repaid from sale of the house later.
Example. A senior receives monthly payments against her house, and keeps living there.
Exam trap. This statement is false: A reverse mortgage requires moving out immediately.
Start early advantage
Starting early gives compounding more time, so a smaller monthly investment can build a larger corpus than a later start with a bigger sum.
Example. A 25-year-old needs far lower SIP than a 40-year-old for the same corpus.
Exam trap. This statement is false: Starting late gives the same result at the same SIP.
Retirement age assumptions
Retiring earlier needs a bigger corpus because savings must last more years with fewer years of accumulation.
Example. A person retiring at 50 needs a larger corpus than at 60.
Exam trap. This statement is false: Retiring earlier lowers the corpus needed.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? Longevity risk is the risk of outliving one's savings because life expectancy is increasing.
- Reinvestment risk
- Rebalancing
- Rating scales
- Longevity risk
Q2. Which term is described here? A safe withdrawal rate is the percentage of the corpus that can be withdrawn each year with a low chance of running out, commonly assumed at around 4% in global studies.
- Safe withdrawal rate
- Sovereign gold bond
- Rule of 72
- Home insurance
Q3. Which term is described here? A defined-benefit pension promises a fixed pension based on salary and service, while defined-contribution plans depend on contributions and returns.
- Pension from employer
- Rider
- Yield curve
- Heads of income
Q4. Which statement best describes “Retirement corpus”?
- The retirement corpus is the accumulated sum needed to fund expenses after retirement, estimated using expenses, inflation, years in retirement and returns.
- Section 80C allows deductions up to a ceiling for specified investments and expenses under the old tax regime, such as PPF, ELSS and life insurance premium.
- Holding period return is the total return over the period an investment is held, including income and price change, as a percentage of the initial value.
- Money available now is worth more than the same amount in the future, because it can be invested to earn a return.
Q5. Which term is described here? The replacement ratio is the percentage of pre-retirement income needed after retirement to maintain the lifestyle, often taken as 60% to 80%.
- Fund selection
- Holding period return
- Diversification
- Replacement ratio
Q6. Which term is described here? The EPF is a mandatory retirement savings scheme for salaried employees with contributions from employee and employer, and interest declared annually.
- Employees' Provident Fund
- Riskometer
- Credit risk
- Prohibition of guaranteed returns
Frequently asked questions
How much of NISM Series X-A comes from Unit 10?
Unit 10 (Retirement planning) usually carries about 10% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series X-A Unit 10?
Corpus estimation. EPF, PPF, NPS and annuities. Withdrawal strategies.
Are these NISM Series X-A practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
Next
UpperCrust Academy is independent study material from UpperCrust Wealth. It is not affiliated with NISM, SEBI or AMFI. For education only. Not investment advice. Always confirm the latest syllabus and rules on the official NISM website.