LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client asks why the plan should distinguish between essential and discretionary spending. The reason is that:
- AOnly discretionary spending is counted when calculating a client's retirement income need
- BEssential spending can be funded from variable sources, while discretionary spending must be guaranteed
- The distinction determines which portion needs a guaranteed floor and which can absorb variability
- DDiscretionary spending is taxed differently from essential spending in retirement
Correct answer: C) The distinction determines which portion needs a guaranteed floor and which can absorb variability
Splitting the budget lets the plan guarantee what cannot be reduced and take investment risk only with the spending that can flex in a bad year.
Why the other options are wrong
- ABoth kinds of spending are counted in the total need.
- BThe relationship runs the other way around.
- DThe tax treatment follows the source of income, not the purpose of the spending.
Exam tip
Guarantee the essentials; let the discretionary part flex.
Common mistake
Treating every dollar of retirement spending as equally fixed.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
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