Certified Plan Sponsor Professional (CPSP) Practice Exam

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What investment option could help someone concerned about outliving their savings?

401(k) plan only
Qualified longevity annuity contract (QLAC)
Stocks and bonds portfolio
Money market fund

The correct answer is: Qualified longevity annuity contract (QLAC)

A Qualified Longevity Annuity Contract (QLAC) is designed specifically to address the concern of outliving one's savings. It allows individuals to invest a portion of their retirement savings into an annuity, which begins providing regular income payments at a future date, typically after the individual reaches a certain age, such as 85. This strategy can be particularly beneficial for ensuring that retirees have a source of guaranteed income later in life when they may have depleted other savings. The other options do not provide the same level of protection against longevity risk. A 401(k) plan is a valuable retirement savings tool but does not guarantee lifetime income, leaving individuals at risk of running out of funds. A stocks and bonds portfolio offers potential growth, but it is subject to market fluctuations and may not provide a steady income stream in retirement. Meanwhile, a money market fund is typically low risk and provides liquidity but does not generate substantial returns or a structured income for the long term, which could also lead to the erosion of purchasing power over time.