scheweser reading 12 ind. risk managnment

page 166 concept checker number 2

question says financial capital least likely to peak at retirement for “the very wealty” , why not “those with pension” or those who purchase annuity"

I couldn’t see the logic here either…I checked through books and I found this (not sure if right)

Curriculum v2 exhibit 4 “For wealthier individuals, the value of defined benefit pension wealth (which is FC) will likely represent a low percentage of the total wealth portfolio in retirement”

I also guess that wealthy individuals will self-insure so expense their FC and other two options are like net inflows into your FC. But I think the question sucks. Anyone else??

Also Schweser 2017…under annuities says

“a lower/higher quoted payout to the annuitant is equivalent to a higher/lower price of the annuity” Shouldn’t this be the other way round???

This updated reading 12 is larger than it was last year and a slap from cfa in my opinion. every sentence seems testable. fml

why not “those with pension” or those who purchase annuity”

True, depending on the amount of Financial Capital the individual is holding.

  • if individual is super-rich and will need to consume only small part of FC after retirement, odds that can still continue to increase his asset base.

  • if individual is poor, he will end up consuming a greater deal of FC and asset base will stay stable / not grow

The answer in the book is not clear to me and even suggests the other way round.

anyway in most cases…if very wealthy and you have retired estate planning would tell me that you start giving away your FC (bequests/gifts). loads of hypotheticals. hopefully somebody will shed some light.

the way I thought of this was around the key word “peak”. With an annuity, your wealth drops at retirement when you begin withdrawing from it. So you peaked right at retirement, then begin draw down. Same for those whom have most of their wealth in a pension plan. For very wealthy individuals, they are more likely to continue to build wealth even in their retirement due to investments and they are probably living on only a portion of their investment income. “It takes money to make money” works well here.

Anyway, that is how I thought of it, I could be completely wrong though.