NISM Series X-B · Unit 2 of 6 · about 20% of the paper
Retirement planning: NISM Series X-B notes and practice questions
30 marks. Sizing the corpus, choosing instruments, and planning the payout.
What to know in Unit 2
- Retirement needs and corpus.
- EPF, PPF, NPS and annuities.
- Withdrawal strategies.
- Longevity and inflation.
Key terms, examples and exam traps
Retirement planning
It estimates the corpus needed to sustain the client's lifestyle after income stops, and the saving needed to reach it.
Example. A 35-year-old plans for retirement at 60.
Exam trap. This statement is false: It focuses only on the date of retirement.
Inflation impact
Inflation raises future expenses, so the corpus must be based on inflated expenses, not today's.
Example. Expenses of ₹5 lakh today are higher at retirement.
Exam trap. This statement is false: Expenses stay constant during retirement.
Real rate of return
The real return is the return after adjusting for inflation, roughly nominal less inflation.
Example. A return of 9% with 6% inflation is about 3% real.
Exam trap. This statement is false: The real return equals the nominal return.
Retirement corpus
The corpus is the amount that, invested at an assumed return, can fund inflation-adjusted expenses for the expected life.
Example. The corpus covers withdrawals up to age 85 or 90.
Exam trap. This statement is false: The corpus only needs to cover five years.
Safe withdrawal rate
A safe rate such as around 4% of the initial corpus, adjusted for inflation, is used as a rule to avoid depletion.
Example. A corpus of ₹2.5 crore supports ₹10 lakh a year.
Exam trap. This statement is false: Withdrawing 20% a year is safe.
Longevity risk
Longevity risk is the risk of outliving one's savings, addressed by planning for a long life and using annuities.
Example. A client plans to age 90.
Exam trap. This statement is false: Longevity risk is the risk of dying early.
Sequence of returns risk
Poor returns in the early years of retirement hurt more because withdrawals deplete the corpus.
Example. A market fall in year one damages the plan.
Exam trap. This statement is false: The order of returns does not matter.
Bucket strategy
The bucket approach holds near-term needs in safe assets and long-term money in growth assets.
Example. Three years of expenses sit in debt funds.
Exam trap. This statement is false: All money sits in equity.
Employees' Provident Fund
The EPF is a mandatory retirement scheme where employee and employer both contribute 12% of basic pay, with a rate declared annually.
Example. A salaried person's retirement base.
Exam trap. This statement is false: EPF offers a fixed guaranteed rate for life.
Public Provident Fund
The PPF has a 15-year tenure, an annual limit of ₹1.5 lakh and a government-set rate, with tax-free interest and maturity under current rules.
Example. An investor opens a PPF for long-term saving.
Exam trap. This statement is false: PPF has a 5-year tenure.
National Pension System
The NPS is a market-linked pension scheme; the Tier I account has restricted withdrawals, and at 60 up to 60% may be taken as a lump sum with the rest used to buy an annuity.
Example. A subscriber buys an annuity with part of her corpus.
Exam trap. This statement is false: NPS allows full free withdrawal at any time.
NPS asset choices
NPS subscribers choose between active choice and auto choice, with different limits for equity exposure.
Example. An investor selects the lifecycle option.
Exam trap. This statement is false: NPS offers only government securities.
Annuity
An annuity converts a corpus into a regular income, for life or a fixed period, in exchange for a lump sum.
Example. A retiree buys an annuity for steady income.
Exam trap. This statement is false: An annuity is a growth investment.
Immediate versus deferred annuity
An immediate annuity starts paying soon after purchase, while a deferred annuity starts after an accumulation phase.
Example. A retiree needing income buys an immediate annuity.
Exam trap. This statement is false: A deferred annuity pays at once.
Annuity with return of purchase price
This option pays income for life and returns the purchase price to the nominee on death, with a lower payout.
Example. A retiree wants to leave money to her heirs.
Exam trap. This statement is false: It gives a higher payout than the life-only option.
Senior Citizens' Savings Scheme
SCSS is a government scheme for those aged 60 and above with a 5-year tenure, a quarterly interest payout and an investment cap.
Example. A retiree seeks safe regular income.
Exam trap. This statement is false: SCSS is open to all ages.
Atal Pension Yojana
APY gives a guaranteed pension of ₹1,000 to ₹5,000 a month at 60 for contributors in the unorganised sector.
Example. A small earner chooses a fixed pension.
Exam trap. This statement is false: APY pays a market-linked pension.
Systematic withdrawal plan
An SWP withdraws a fixed amount from a mutual fund regularly, providing income while the balance stays invested.
Example. A retiree draws monthly from a debt fund.
Exam trap. This statement is false: An SWP sells the whole fund at once.
Retirement income sources
Sources include pension, rental income, interest, dividends and annuities, and the adviser should map them against expenses.
Example. An adviser tabulates income against needs.
Exam trap. This statement is false: Only one source is needed.
Reverse mortgage
A reverse mortgage lets a senior citizen borrow against the home and receive regular payments with no repayment during life.
Example. A homeowner draws income against the property.
Exam trap. This statement is false: The borrower makes monthly repayments.
Healthcare in retirement
Medical costs rise faster than general inflation, so health cover and a medical reserve are part of the plan.
Example. A plan sets aside a health fund.
Exam trap. This statement is false: Healthcare costs fall after retirement.
Savings needed per month
The monthly saving is found by working out the future value of a series of investments needed to reach the corpus.
Example. A planner solves for the SIP to reach ₹3 crore.
Exam trap. This statement is false: Savings are computed without any return assumption.
Replacement ratio
The replacement ratio is post-retirement income as a share of pre-retirement income, often taken at 60 to 80%.
Example. A client plans for 70% of the last salary.
Exam trap. This statement is false: Replacement ratio is always 100%.
Glide path
As retirement nears, the equity share is reduced gradually to protect the corpus.
Example. A lifecycle fund shifts to debt with age.
Exam trap. This statement is false: Equity is raised as retirement nears.
Early retirement
Retiring earlier increases the corpus needed because there are fewer saving years and more years to fund.
Example. A client wants to retire at 45.
Exam trap. This statement is false: Early retirement lowers the required corpus.
Retirement and tax
Pension and annuity income are taxed as income, and tax on withdrawals depends on the product and the rules in force.
Example. An annuity payout is added to taxable income.
Exam trap. This statement is false: Annuities are always tax-free.
Review and rebalancing
A retirement plan is reviewed every year for changes in expenses, returns, health and goals.
Example. The adviser reviews assumptions annually.
Exam trap. This statement is false: A plan is set once and never reviewed.
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? A safe rate such as around 4% of the initial corpus, adjusted for inflation, is used as a rule to avoid depletion.
- Glide path
- Proximate cause
- Safe withdrawal rate
- Guardian for minors
Q2. Which statement best describes “Atal Pension Yojana”?
- APY gives a guaranteed pension of ₹1,000 to ₹5,000 a month at 60 for contributors in the unorganised sector.
- Poor returns in the early years of retirement hurt more because withdrawals deplete the corpus.
- A floater shares one sum insured among members, while individual policies give each person a separate sum.
- Crediting success to skill and failure to bad luck.
Q3. Which term is described here? The NPS is a market-linked pension scheme; the Tier I account has restricted withdrawals, and at 60 up to 60% may be taken as a lump sum with the rest used to buy an annuity.
- SEBI Investment Advisers Regulations
- Free-look period
- National Pension System
- Employees' Provident Fund
Q4. Which statement best describes “Sequence of returns risk”?
- The way information is presented influences the decision, even when facts are the same.
- Tax liability depends on residential status; residents are taxed on global income and non-residents on India-sourced income.
- Health policies are indemnity contracts that cover hospital costs up to the sum insured, with waiting periods for pre-existing conditions.
- Poor returns in the early years of retirement hurt more because withdrawals deplete the corpus.
Q5. Which term is described here? The corpus is the amount that, invested at an assumed return, can fund inflation-adjusted expenses for the expected life.
- Financial planning
- Retirement corpus
- Joint holding
- Present value
Q6. Which statement best describes “Annuity”?
- APY gives a guaranteed pension of ₹1,000 to ₹5,000 a month at 60 for contributors in the unorganised sector.
- A policy under the Married Women's Property Act creates a trust for the spouse and children, protecting proceeds from creditors.
- Tolerance is the willingness to bear risk, and capacity is the financial ability to bear it; the lower one governs.
- An annuity converts a corpus into a regular income, for life or a fixed period, in exchange for a lump sum.
Frequently asked questions
How much of NISM Series X-B comes from Unit 2?
Unit 2 (Retirement planning) usually carries about 20% of the questions. The whole exam has 120 questions and the pass mark is 60%.
What should I study in NISM Series X-B Unit 2?
Retirement needs and corpus. EPF, PPF, NPS and annuities. Withdrawal strategies. Longevity and inflation.
Are these NISM Series X-B practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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