Question

25 nearing retirement, spencer is discussing his options to withdraw the money he accumulated in his rrsp with his advisor. ternton spencer would like to ensure he receives income for life and he also likes to have the ability to choose his own investment strategy. his agent recommends a variable annuity and spencer accepts his recommendation. which of the following risks is spencer most likely to face with this investment?
a. inflation risk
b. equity risk
c. longevity risk
d. interest risk

Explanation:

Spencer is choosing a variable income annuity and managing his own investments. Longevity risk refers to the risk of outliving one's savings. Since he wants income for life and is using a variable annuity (which has market - related risks but also aims to provide income over a long period), and he's managing investments himself, the risk of living longer than his savings last (longevity risk) is relevant. Inflation risk is about the eroding value of money due to inflation, equity risk is about stock - related losses, and interest rate risk is about changes in interest rates affecting investments. Given his goal of income for life, longevity risk is the most likely.

Answer:

c. Longevity risk